Author: Antonio Guerrero

Mexico

By Antonio Guerrero

58

Calderó n: Boosting investors’ confidence in Mexico

While Mexican president Felipe Calderón works to kick-start his nation's economy, badly hit by the US recession, international investors are encouraged by signs of recovery and have unleashed a buying spree for Mexican sovereign debt. The Mexican government has already sold $3 billion in international bond issues this year, and finance ministry officials say there are more deals in the pipeline.

The latest issue, in April, saw Mexico selling $1 billion worth of 30-year bonds in a deal reportedly more than two times oversubscribed. In March, the sovereign sold another $1 billion worth of 5.125% 10-year bonds in a reopening of a $1 billion deal initially sold in January. Authorities last December had estimated that the country would raise just $3 billion on international markets for full-year 2010.


Much of the demand for Mexican paper is supported by signs that the nation's economy, which plummeted 6.5% last year, is on the rebound. The finance ministry predicts it will grow 4.1% this year. The government upped its forecast in March from an initial 3.9%, maintaining its 2011 forecast at 4%.


The IMF predicts Mexico will grow 4% this year and 4.5% in 2011. It notes Mexico recovered quickly from an H1N1 outbreak last year, when it also adopted fiscal and monetary policies that are paying off nicely. International reserves stand at a healthy $94.5 billion. The IMF points to growth in auto manufacturing as an area to watch for signs of further recovery. Mexico's auto output in March soared by 85.1% year on year.


The aggressive issuance plan allows Mexico to improve liquidity and consolidate dollar bond yields. While some question its timing in reaching its issuance target so quickly, others say the country was right to seek the lowest possible yields before mounting tensions between Greece and the European Union heightened market jitters.