Investors Lukewarm on 30-Year Mexican Bonds

Mexico on Wednesday received a lukewarm reception from investors for a new 30-year bond the government hoped would set a benchmark and reduce future borrowing costs.

The Mexican government will issue $1.75 billion of new 30-year global bonds in exchange for outstanding fixed- and floating-rate bonds that mature in 2019.

The Finance Ministry had originally said it would issue as much as $2.5 billion worth of new bonds in exchange for outstanding debt. The interest rate Mexico will pay was also slightly higher than expected.

“It’s not a disaster, but it wasn’t the blowout they expected,” said Robert Kowit, fund manager at Federated Global Research Corp. in New York.

The new 30-year bonds will carry an interest rate of 11.50%.

The bonds were priced at $92.93 per $100 face value to yield 12.40%, or 5.5 percentage points more than comparable U.S. Treasury securities. Goldman, Sachs & Co. managed the debt swap.

Mexico proposed issuing $1 billion to $2.5 billion of new 30-year securities in exchange for fixed- and floating-rate Brady bonds, which are partially backed by U.S. government securities.

By proving there was investor demand for long-term, uncollateralized Mexican debt, the government hoped to lower its borrowing costs and pave the way for future securities sales.