Scramble For Yield Goes Ballistic----Even Mexican Junk Bonds Up 2X Over Last Year

By Ben Bain and Isabella Cota at Bloomberg

Mexico’s riskiest companies have almost doubled their bond sales abroad this year as surging demand for junk debt sends borrowing costs to a record low.

Lender Unifin Financiera SAPI’s offering last week pushed sales of speculative-grade dollar notes from the country to $3.5 billion, a 92 percent increase from the same period last year and the most since 2011, data compiled by Bloomberg show.

As the Federal Reserve pledges to keep interest rates near zero, companies in developing countries including Mexico are turning to debt markets to exploit global demand for higher-yielding assets. Yields on junk-rated Mexico corporate debt have tumbled 0.76 percentage point this year and touched an unprecedented 5.23 percent this month, Bank of America Corp. indexes show. Average yields in emerging markets have dropped 0.65 percentage point in the same span.

“With rates staying this low, reaching down for yield is the new sport,” Claudio Robertson, the head of fixed-income trading at Investment Placement Group, said by e-mail. “Comparable bonds are very hard to get.”

Mexico City-based Unifin sold $400 million of five-year bonds to yield 6.375 percent, or 4.69 percentage points more than U.S. Treasuries, in its first ever dollar offering on July 15. The company is rated BB-, three levels below investment grade. In May, Mexico micro-lender Financiera Independencia SAB (FINDEP*), rated one level lower by S&P, sold $200 million of bonds also due in 2019 to yield 7.75 percent.

‘Extraordinarily Well’

“We did extraordinarily well,” Luis Gerardo Barroso, the non-bank lender’s chief executive officer, said in a telephone interview from Mexico City. “The markets offer you certain windows of opportunity. We had been looking at this one for a month and a half.”

Investor demand for Unifin’s debt was so high that the company increased the amount of the bonds it sold by $100 million, he said.

Cemex SAB (CEMEXCPO), the largest cement maker in the Americas, is the biggest seller of junk-rated debt from Mexico this year, issuing $1 billion of notes in March, data compiled by Bloomberg show. The company sold the debt due in 2024 on March 25 to yield 6 percent, compared with an average yield for similarly rated emerging-market debt at the time of 9.62 percent, according to data compiled by Bloomberg and Credit Suisse.

Mexico’s peso dropped 0.2 percent to 12.9755 per U.S. dollar at 10:03 a.m. in New York.

Fed Stance

Federal Reserve Chair Janet Yellen reiterated on July 16 that interest rates are likely to stay low for a “considerable period” after policy makers end their unprecedented bond buying program aimed at boosting U.S. economic growth. Borrowing costs for emerging-market companies have dropped this year as speculation the Fed will hold off on raising rates has helped drive down 10-year U.S. Treasury yields, a benchmark for corporate issuers, by 0.55 percentage point.

“There’s very little capital appreciation you can get here” in the U.S., Roberto Sanchez-Dahl, who helps oversee $3.5 billion in emerging-market debt as money manager at Manulife Asset Management in Boston, said in a telephone interview. “Definitely, right now Mexico is benefiting from that very strongly.”


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