Mexican International Sovereign Debt Structure

To continue my last post about the Mexican sovereign debt structure, I will talk about the international debt issued by Mexico. The issuance of government securities in international markets is critical to achieve the Mexican federal government’s funding objectives. The process of the federal government’s securities allocation in international markets is as follows.

  1. The federal government agrees with investment banks to issue securities in the market.
  2. The investment banks announce the transaction and promote it to investors.
  3. Investors purchase, through the investment banks, securities issued by the federal government.
  4. Investment banks deliver proceeds from the transaction to the federal government. Simultaneously, the federal government instructs the fiscal agent to deliver the securities to investors.

According to the Mexican Ministry of Finance, unlike domestic debt, there is no timetable for the issuance of securities denominated in foreign currency, since the decision to issue external debt is linked to the public debt strategy as well as to market conditions. Currently, the federal government has debt in U.S. dollars (USD), euros (EUR), British pound sterling (GBP), and Japanese yen (JPY) with 20, 2, 11, and 11 bonds by currency, respectively.

Of note, Mexico has issued three bonds with maturities of 100 years (perpetual bonds). The latest was issued in April 2015 in euros and will mature in 2115; the one issued in USD matures in 2110 and the one issued in GBP matures in 2114. This last bond was actually the first sovereign bond issued by any country in GBP with that maturity, and it had a bid-to-cover ratio of 2.5, which indicates the acceptance of Mexican issuances in global markets.

With USD 68,500 million of outstanding debt in the four currencies, Exhibit 1 shows the structure for these bonds, and we can see that 65% of the total amount is issued in USD. Almost 40% of the total debt has a maturity of more than 20 years and 30% between 5 and 10 years (see Exhibit 2).

The 10 different indices in the S&P/BMV Fixed Income Index series are designed to track the performance of bonds issued in U.S. dollars. Exhibit 3 shows the returns of the S&P/BMV Sovereign International UMS Bond Index and the S&P/BMV Sovereign International UMS Bond Index (USD), with the returns of the former expressed in Mexican pesos and the latter in U.S. dollars.

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