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Tuesday, October 18, 2011

Geo Plunge Leads Worst Corporate Slump Since ‘06: Mexico Credit

Oct. 18 (Bloomberg) -- Mexican corporate bonds are posting their longest losing streak in five years as the slowdown in the U.S., the Latin American country’s biggest trade partner, erodes demand for debt sold by companies from Corp. Geo SAB to Financiera Independencia SAB.

The 2.1 percent loss in Mexican corporate dollar debt over the past 30 days is the third straight month of declines, the most since the period ended June 17, 2006, according to JPMorgan Chase & Co. Brazilian companies’ bonds slumped 1.3 percent in the past month, the second consecutive month of losses. Emerging-market corporate debt also fell for a second month, losing 1.9 percent over the past 30 days.

Concern Latin America’s second-largest economy will be among the countries most affected by the flagging recovery in the U.S. is driving up borrowing costs for Mexican companies. The average yield on Mexican corporate debt climbed 4 basis points, or 0.04 percentage point, in the past three months to 6.69 percent, according to JPMorgan.

“The amount of capital flows and trade flows between the two economies left Mexico more vulnerable to underperformance than other large Latin countries that have less of a direct connectedness to the U.S. economy,” Michael Roche, an emerging- market strategist at MF Global, said in a telephone interview from New York.

Yields on Mexican dollar bonds due in 2020 have climbed two basis points in the past month to 3.65 percent, according to Bloomberg data. The securities returned 0.7 percent during that period.

Growth Outlook

Yields on debt due in 2020 from Geo, the Mexico City-based homebuilder, have surged 216 basis points in the past three months to 10.31 percent, according to data compiled by Bloomberg. The yield on microfinance lender Financiera Independencia’s notes due in 2015 soared 359 basis points during the same period to 11.43 percent.

Geo’s communications director Alejandro Haiducovich declined to comment. Financiera Independencia’s investor relations official Vicente Gutierrez declined to comment immediately.

Mexico’s gross domestic product will rise 3.8 percent this year, compared with an increase of 5.4 percent in 2010, according to the median survey of 19 economists by Citigroup Inc.’s Banamex unit. They forecast an expansion of 4.38 percent in a June survey. The U.S. economy, the buyer of 80 percent of Mexico’s exports, will expand 1.7 percent this year after growing 3 percent in 2010, according to the median estimate of 82 analysts surveyed by Bloomberg.

‘Exaggerated’ Declines

Mexican corporate bonds are underperforming because of their “overall connection or correlation to U.S. markets,” Bevan Rosenbloom, a credit strategist with Citigroup Inc. in New York, said in a telephone interview. “Mexico will always be tied to U.S. growth.”

Guillermo Rodriguez, who helps manage about $5.5 billion at Corp. Actinver SAB, said he may buy bonds sold by companies including Financiera Independencia and Geo because their price declines are unwarranted.

“The movement has been exaggerated,” Rodriguez said in a telephone interview. “There’s no reason for them to be punished so much.”

The extra yield investors demand to hold Mexican government dollar bonds instead of U.S. Treasuries expanded 5 basis points to 233 basis points yesterday, according to JP Morgan.

The cost to protect Mexican debt against non-payment for five years rose seven basis points to 155 yesterday, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a government or company fails to adhere to its debt agreements.


Peso Slump

Yields on futures contracts for the 28-day TIIE interbank rate due in December rose 4 basis points to 4.70 percent, indicating traders expect the central bank to raise the rate that month.

The peso fell 1.8 percent to 13.4856 per U.S. dollar. It’s down 13 percent in the past three months, the worst-performing currency in Latin America.

Mexico’s GDP shrank 6.1 percent in 2009, the most since 1995 and the second-worst contraction of the economies tracked by Bloomberg after Russia, as a housing industry collapse sank the global economy into recession. U.S. GDP contracted 3.5 percent in 2009.

“The Mexican economy is so linked to the U.S. that any negative effect in the U.S. has immediate repercussions in Mexico, more strongly than in other economies that don’t have as much dependence on the American economy,” Gaston Guerrero, who helps manage about $300 million of emerging-market debt at Precise Securities, including bonds sold by Financiera Independencia, said in a telephone interview from Los Angeles.

Source: www.businessweek.com

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