Mexico bonds

By Eduardo Bolio and Jaana Remes, McKinsey

Since the 1980s, both national and international observers have predicted time and again that economic growth in Mexico is just about to take off. But it hasn’t, and others have quickly gained ground and overtaken Mexico. In 1980, for instance, Mexico’s GDP per capita was almost double South Korea’s and 30 per cent higher than Taiwan’s. Today, South Korean per capita GDP is twice Mexico’s and Taiwan’s is almost three times as much. China, which had one-twelfth of Mexico’s GDP per capita in 1980 could surpass Mexico by 2018.

The important factors that stoke rapid growth in emerging economies exist in Mexico: a young and growing labor force, abundant natural resources, and access to export markets (in Mexico’s case a strategic location next to the United States and membership in NAFTA provide uniquely privileged access). In addition, Mexico has opened up its economy to trade and foreign investment, installed extensive reforms. Since 2000, it has also been able to boast sustained macroeconomic and fiscal stability. Read more

Mexico’s 2015 budget may contain a slightly lower growth forecast than originally anticipated, but compared to other heavyweights in Latin America, things are still looking good.

In the 2015 budget presented to Congress, Mexico’s government pencilled in a GDP growth goal for next year of 3.7 per cent. As recently as April, the government had been sticking to a 4.7 per cent forecast. Even though a full point lower than that earlier forecast, it’s still ahead of this year’s goal of 2.7 per cent, which the government has ratified. Read more

Even before Ben Bernanke hinted back in May that the US Federal Reserve could soon start scaling back its massive bond-buying programme, Mexican bonds were feeling the pinch. From 3.9 per cent in late April, yields on the country’s most-traded dollar-denominated bond, the so-called M24, rose by as much as 160bp before settling at 5.18 per cent – or 128.7bp higher – at the end of last week.

But is this really a Fed effect? Read more

By Vivianne Rodrigues and Pan Kwan Yuk

Things just keep getting better and better for Mexico.

The country’s stock market is having a record-breaking run. Manufacturing is chugging along nicely. Consumer confidence is at a five year high. And now comes the cherry on the cake – long-term borrowing costs for Mexico this week fell to an all-time low. Read more

Need further proof that Mexico’s star is rising among foreign investors?

Consider this: the country this week braved the choppy global market to pull off a Y80bn ($1bn) issue of “samurai” bonds, or yen-denominated debt, in Japan.

The sale is significant on a number of levels. Not only did Mexico raise a good sum of money, but it did so without having to offer any collateral (an indication of Mexico’s improving credit quality). The fact that the buyers were predominantly Japanese also underscores the growing perception of Mexico as a safer investment thesis thanks to its improving fundamentals and export-led growth engine. Read more

The lesson that doing your homework, and doing it well, pays off has been somewhat of a theme for Mexico this month. That was the main message of Richard Fisher, president and chief executive officer of the Federal Reserve Bank of Dallas, when he used a recent visit to the country’s stock market to lavish praise on Mexico’s handling of its public finances.

And it was the underlying theme of Monday’s US$2bn dollar-denominated bond issue, Mexico’s second outing to the international markets this year. Read more