NEW YORK – Mexico may issue yen-denominated bonds for the second time in 10 months, tapping into Japanese investors’ growing demand for the higher yields offered on samurai bonds.
The Mexican government hired three banks to arrange investor meetings in Japan, according to a source. The 1.41 percent yield on Mexico’s yen bonds due 2020 is 51 basis points, or 0.51 percentage point, more than that on Japanese government debt.
While that gap lures buyers looking for alternatives to near-zero benchmark Japanese rates, it’s below the 179 basis-point spread Mexico is paying over Treasuries in the dollar market and less than the 204 basis-point premium over German bonds in the euro market.
Mexico, Latin America’s biggest overseas issuer this year, is preparing to join a rush by international issuers to borrow in Japan this year. Foreign companies and governments have sold ¥1.7 trillion of debt, known as samurai bonds, a 60 percent increase from the ¥1.06 trillion issued in the same period of 2010, according to data compiled by Bloomberg.
“The Japanese have continued appetite for yield,” said Michael Roche, an emerging-market strategist at MF Global in New York. “From a Japanese perspective, you’re looking at a North American credit offering a lot more yield than available elsewhere in North America.”
Mexico is a standout in a region where international bond sales have dried up in the past month amid concern the global economy is sinking into recession. A yen offering would follow the country’s $1 billion issue of 100-year bonds Aug. 10. Latin American companies and governments sold $2 billion of bonds this month, after issuing $67 billion to start the year, according to Bloomberg data.
A samurai offering by Mexico would be the third by a Latin American borrower this year, the most since Brazil, Colombia and Uruguay issued yen debt in 2001. Uruguay sold ¥40 billion of 10-year bonds to yield 1.64 percent in May and Panama issued ¥41.5 billion of notes due 2021 to yield 1.81 percent in January.
Mexico, which is rated BBB by Standard & Poor’s and Fitch Ratings, the second-lowest investment-grade ranking, last sold yen bonds in October, issuing ¥150 billion of debt due 2020 to yield 1.51 percent, or 50 basis points more than benchmark Japanese notes. Yields on the securities, which were backed by the Japan Bank for International Cooperation, have fallen 10 basis points since the offering.
Citigroup Inc., Mitsubishi UFJ Morgan Stanley Securities Co. and Nomura Holdings Inc. are arranging Mexico’s meetings with bond investors starting next week, said the source, who asked not to be identified because the talks are private.
Mexico’s October sale of bonds in Japan was managed by Nomura, Mitsubishi UFJ Morgan Stanley and Mizuho Securities Co.
The Mexican government’s sale of 100-year bonds lifted its international issuance this year to $3 billion.
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