Mexico taps market for €750 million 15-year bonds; emerging market debt static ahead of U.S data

By Reshmi Basu

New York, Nov. 15 - Mexico tapped the capital markets Monday with €750 million of 15-year bonds in an otherwise quiet market.

In a drive-by sale, The United Mexican States sold €750 million bonds due 2020 (Baa2/BBB-/BBB-) at 99.561 to yield 5.646% or a spread of mid-swaps plus 142 basis points. Bookrunners were Credit Suisse First Boston and Deutsche Bank.

That new supply of euro paper depressed Mexico's paper in trading, according to a Latin America debt strategist at Refco EM.

"The whole market reacted in a negative way in Mexico because of the excess of supply," he said.

"And that compares with the rest of the market that had an uptrend," at the close of markets in both Colombia and Brazil.

The issuance wraps up Mexico's funding needs for 2005 in the international capital markets. And according to the strategist, Mexico was prudent to hit the market with a euro deal.

"There is some pressure on the [U.S] Treasury market. I think that it's probably a good idea at least to tap that currency, where there's not a lot of supply," he said.

In trading Monday, Mexico's bond due 2009 lost 0.10 to 122.60 while its bond due 2026 was down 0.20 to 152 bid.

In secondary activity, Bulgaria's MobilTel Finance BV's new issuance of €200 million of senior notes due 2009 (Ba2/BB+) traded higher.

At late morning, the notes were quoted at 101.433 bid, 101.922 offered, well above the 99.978 at which they price Friday - equivalent to mid-swaps plus 180 basis points.

ABN Amro, Citigroup and ING were joint bookrunners for the Regulation S offering.

Quiet day for emerging markets

During trading Monday, there was very little action as investors looked ahead to the week's U.S economic data for signals as to the direction the market will take.

"Trading was very quiet today [Monday] - start of the week," said a trader.

"You have the PPI and CPI numbers coming up tomorrow [Tuesday] and Wednesday. Trading is just nothing.

"Brazil traded up in the morning. We were up 114 5/8 bid and that kind of pulled back a little. But overall, the market held strong today [Monday]", the trader said, adding that the tone in the market was "generally confident."

"There's nothing dragging it down right now. It's just quiet out there. Treasuries are down a little. Stocks are up today [Monday]. EM traded up this morning and held firm ever since," said the trader.

During Monday's session, the Brazil bond added 0.062 to 100 bid while the bond due 2040 was bid at 114.40, up 0.80. The Turkey bond due 2030 was up 1/8 of a point to 138 5/8 bid.

Despite trading in narrow ranges, emerging market paper is steadily edging up, according to the Refco debt strategist.

"I think slowly the market is moving higher," he said.

"You see the Brazilian '40, for example, trading on the upper side of the range. It's almost nearing 115, which is very positive without positive news in the market," he said.

Furthermore, encouraging press reports will continue to generate new interest in emerging markets, nudging the paper up ever so slightly, he commented.

"There's been a lot of news on TV and in the financial media giving a lot attention to emerging markets so we're going to see a trend of new money going to the asset class.

"And I think that's going to move the market a little bit - without a lot of volume as we experienced today [Monday].

"I think that is going to be the trend from here to the end of the year unless there is a drastic move in the U.S Treasury market.

"In terms of dollars, there is a clear demand for non-U.S dollar denominated assets, so that could create a little bit of uncertainty in the euro bond market.

"If the trend of the dollar continues, it will head lower."

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