Mexico flaunted its position of strength in the capital markets last week when it priced its new Eu750m 10 year benchmark at one of the most aggressive levels yet seen on its euro bonds.
The deal, led by Barclays Capital and UBS, was priced at 107bp over mid-swaps, or flat to Mexico's 2015 dollar bonds which trade richly in their own right.
The pricing was possible in part because with this deal Mexico has completed all of its 2005 funding needs and 90% of its requirements for 2006, a fact that bred anxiety among euro investors who feared the deal might be the last from Mexico in their market.
"Because they were negotiating from a position of strength and flexibility, they wanted to make sure the deal was priced efficiently," said a banker at one of the leads.
Although the deal widened out to around 118bp over mid-swaps yesterday (Thursday), underwriters argued it was in line with a weaker market and for the most part bankers away from the deal thought the offering was well executed.
"Mexico in euros is not very exciting and that is a compliment to them because it means there is no real mystery where they will come relative to the dollar curve," said a head of emerging market bond syndicate in London. "The deal did not offer too much value relative to the dollar curve, but it probably should not."
The leads also looked at spread levels for other triple-B and single-A borrowers in euros and decided the spread differential between eight and 10 years was worth about 9bp a year.
With the United Mexican States' (UMS) 2013s trading at around 90bp over mid-swaps, the 107bp pricing on the 2015s equates to a curve worth about 8.5bp a year between eight and 10 years.
The UMS has been keen to pre-fund 2006 because of the high likelihood of it being a volatile election year.
Given its advanced pre-funding, the UMS has switched its focus to expanding its investor base in non-dollar markets.
A fortnight ago it issued a Swiss franc deal; it has come to market in euros this week and is also keeping a close watch on the Samurai market to see if a bid for emerging bonds returns.
The tight pricing on the deal meant a book free of padded orders with Eu1bn of demand from 149 accounts. Less than 2% were hedge funds. Distribution was about 24% Germany, 17% UK, 15% Switzerland, 10% Italy and others about 14%.
As tight as it might be to its dollar curve, Mexico offers an enormous pick-up over other emerging market issuers like Poland, which trades around 17bp over mid-swaps in the 10 year part of the curve.