Mexico Prices Bonds Aimed at U.S. Investors

The Mexican government on Monday launched two bond offerings aimed at individual U.S. investors, but the yields on the securities underwhelmed some analysts.

Mexico offered five-year notes yielding an annualized 5% and seven-year notes yielding 5.1%.

By contrast, the yield on five-year U.S. Treasury notes was 4.57% on Monday. The yield on Treasuries maturing in seven years was 4.62%.

Under the Mexican deal, managed by investment banking firms Incapital in Chicago and Banc of America Securities in New York, the new notes are denominated in dollars and are offered in $1,000 increments.

The securities are the Mexican government’s first attempt to raise bond money directly from small investors in the United States.

The notes are rated investment grade by major credit-rating firms, but at the low end of that spectrum. Standard & Poor’s rates them BBB; Moody’s Investors Service gives them a grade of Baa1.

Tom Ricketts, chief executive of Incapital, said Mexico was selling the U.S. notes “to smooth out their [debt] maturities and go to a new investor base” for capital.

Because the securities are denominated in dollars, they don’t face the direct risk of devaluation if the Mexican peso should slide in value against the dollar.

But the new notes are paying less than other dollar-denominated Mexican bonds that are mostly owned by institutional investors.

The yield was 5.22% on Monday on the five-year institutional securities, said Bret Rosen, a vice president at Trust Co. of the West in Los Angeles.

Mexico’s economy has been growing at a healthy pace, and its stock market hit a record high in late January, reflecting investors’ optimism about the economy’s outlook.

Still, Marilyn Cohen, head of investment firm Envision Capital Management in Los Angeles, said the 0.43-point extra yield on the new Mexican notes compared with five-year U.S. Treasury notes was “not worth it” for the risks involved.

She also noted that interest on the Mexican securities was subject to federal and state income tax, whereas U.S. Treasury interest was subject to federal tax but not to state tax. In a high-tax state such as California, that makes Treasuries more appealing for many investors, she said.

Ricketts said Mexico intended to raise a total of $1.5 billion via the new securities. He said notes of additional maturities would be issued in coming weeks.