Mexico sells debut 'century' euro bond

Mexico is selling its first euro-denominated "century" bond, affirming its status as one of the developing world's most favoured sovereign borrowers and swelling the issuance of world debt that will not be paid back for generations.

Initial pricing talks put the yield at around 4.5 per cent - an attractive proposition at a time when large swaths of the global government bond market offer sub-zero yields. Mexico has sold euro debt before but this is the first ever 100-year emerging markets bond sale in the common currency, according to people close to the deal.

Investor appetite for emerging markets has soured over the past year, as the resurgent US dollar has beaten down currencies in the developing world, China's economy has slowed down sharply and the US Federal Reserve prepares to raise its benchmark interest rate for the first time in almost a decade.

Nonetheless, Mexico is one of the darlings of the global investment community, and its previous 100-year bonds in sterling and the US dollar have held up well despite the bouts of turmoil in emerging markets.

The dollar-denominated century bond issued in 2010 was sold at a yield of 6.1 per cent, and was trading at 5.3 per cent on Wednesday. The sterling century bond was issued last year with a yield of 5.75 per cent, and is now trading at 5.32 per cent.

The euro-denominated 100-year bond was expected to price at a yield well below its existing century bonds, reflecting the ravenous appetite for debts denominated in the common currency, as the European Central Bank's quantitative easing programme pushes yields down to unprecedented levels across the continent.

"It's a clear indication that the euro market is highly attractive for high-quality issuers such as Mexico," said Marik Narain, a strategist at UBS.

Across the world, sales of sovereign and corporate debt that will not mature for more than 30 years are at a record high as borrowers take advantage of the falling cost of issuing debt on capital markets. As well as Mexico, EDF, the French energy company, has recently issued 100-year bonds denominated in dollars and sterling, while Canada and Spain sold 50-year debt for the first time.

Mr Narain said the trend towards more euro-denominated issuance from emerging markets was a "welcome trend" as it indicated that governments in the developing world are keen to diversify away from issuing almost purely in their local currencies and the US dollar.

"Increased government issuance in euros will likely encourage corporates in EM to follow suit," he said. "By our estimates around 75 per cent of EM external debt is denominated in US dollars today . . . a more diversified funding mix can help to reduce market sensitivity to dollar strength."

Goldman Sachs and HSBC will manage the sale.

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