Mexico’s peso advanced, extending gains from yesterday, after Moody’s Investors Service raised the nation’s credit rating to the highest ever.
The peso rose 0.1 percent to 13.2752 per dollar at 4 p.m. in Mexico City, the strongest closing level since Jan. 28. It has climbed 2 percent since Feb. 3.
The A3 rating assigned by Moody’s yesterday is four steps above the junk-grade threshold that signals high-yield, high-risk debt. The ranking is the highest in Latin America after Chile and two levels above Brazil, the region’s biggest economy.
The one-level upgrade will help buffer the nation from a rout in emerging markets, according to Western Asset Management Co. and Credit Agricole SA.
“There’s been a lot of negativity about emerging markets overall, as if the asset class was completely homogeneous,” said Robert Abad, who helps oversee $53 billion of developing-nation debt at Pasadena, California-based Western Asset Management Co.
“This upgrade will draw in more investors globally looking for higher-quality emerging-market assets with higher spread and yield versus developed-world equivalents.”
Moody’s said President Enrique Pena Nieto’s new laws to open the oil industry to private investment and curb the market power of dominant telecommunications providers will add about 1 percentage point to the long-term economic growth rate.
That optimism has helped fuel a 0.7 percent return on Mexican dollar bonds this year, compared with losses of more than 5 percent on debt from countries including Argentina and Ukraine.
Extra Yield
The extra yield investors demand to hold Mexico dollar bonds rather than U.S. Treasuries reached a seven-month high this week before falling 0.11 percentage point yesterday to 2.06 percentage points, up 0.29 percentage point from the start of the year, according to JPMorgan Chase & Co.
The average spread for emerging markets has risen by 0.41 percentage point this year to 3.49 percentage points, according to the bank. Mexico’s spread narrowed nine basis points today to 1.97 percentage points today.
Lawmakers approved at least 10 constitutional amendments in Pena Nieto’s first full year in office. The government has said that changes to open the oil industry to more private investment will boost growth by 1 percentage point by 2018.
Mexico’s gross domestic product will expand 3.42 percent this year after projected growth of 1.28 percent in 2013, according to analysts surveyed by Bloomberg.
“The rules of the game have been redefined” in Mexico, Mauro Leos, an analyst at Moody’s, said in a telephone interview.
“If over time, in a two- or three-year horizon, we see the impact of the reforms is significant and leads to higher growth or better fiscal indicators than what we currently expect, that could lead to an even higher rating.”
Peso Strengthens
The ratings company’s bullishness mirrors that of Bill Gross, Pacific Investment Management Co.’s founder, who said last week the nation is “still the best of the emerging markets,” even as it’s caught up in an onslaught of selling.
Mexico’s new rating from Moody’s is one step higher than comparable levels at Fitch Ratings and Standard & Poor’s.
Fitch would need to see faster growth in Latin America’s second-biggest economy relative to higher-rated peers before increasing the rating, analyst Shelly Shetty said today in an e-mailed statement.
The peso, which had weakened before yesterday’s announcement, strengthened 0.3 percent yesterday. Yields on the country’s benchmark peso-denominated notes due in 2024, of which Pimco is the biggest holder, tumbled 0.11 percentage point to 6.58 percent yesterday. Yields fell 0.06 percentage point today to 6.52 percent.
Should Climb
Almost half the time, government bond yields fall when a rating action suggests they should climb, or they increase even as a change signals a decline, according to data compiled in 2012 by Bloomberg on 314 upgrades, downgrades and outlook changes going back as far as 38 years.
The rates moved in the opposite direction 47 percent of the time for Moody’s and for S&P. The data measured yields after a month relative to U.S. Treasury debt, the global benchmark.
Rafael Elias, a New York-based analyst at Credit Agricole, said that the upgrade should bolster bonds of the state-owned oil producer, Petroleos Mexicanos, known as Pemex.
The yield on Pemex’s 2023 dollar bonds fell 0.11 percentage point yesterday to 4.71 percent, the biggest drop since Sept. 16, according to data compiled by Bloomberg.
The yield dropped 0.12 percentage point more today. “This will positively affect Pemex and other investment-grade Mexican names and should draw in more investments,” Elias wrote in a note to clients.
bloomberg.com
The peso rose 0.1 percent to 13.2752 per dollar at 4 p.m. in Mexico City, the strongest closing level since Jan. 28. It has climbed 2 percent since Feb. 3.
The A3 rating assigned by Moody’s yesterday is four steps above the junk-grade threshold that signals high-yield, high-risk debt. The ranking is the highest in Latin America after Chile and two levels above Brazil, the region’s biggest economy.
The one-level upgrade will help buffer the nation from a rout in emerging markets, according to Western Asset Management Co. and Credit Agricole SA.
“There’s been a lot of negativity about emerging markets overall, as if the asset class was completely homogeneous,” said Robert Abad, who helps oversee $53 billion of developing-nation debt at Pasadena, California-based Western Asset Management Co.
“This upgrade will draw in more investors globally looking for higher-quality emerging-market assets with higher spread and yield versus developed-world equivalents.”
Moody’s said President Enrique Pena Nieto’s new laws to open the oil industry to private investment and curb the market power of dominant telecommunications providers will add about 1 percentage point to the long-term economic growth rate.
That optimism has helped fuel a 0.7 percent return on Mexican dollar bonds this year, compared with losses of more than 5 percent on debt from countries including Argentina and Ukraine.
Extra Yield
The extra yield investors demand to hold Mexico dollar bonds rather than U.S. Treasuries reached a seven-month high this week before falling 0.11 percentage point yesterday to 2.06 percentage points, up 0.29 percentage point from the start of the year, according to JPMorgan Chase & Co.
The average spread for emerging markets has risen by 0.41 percentage point this year to 3.49 percentage points, according to the bank. Mexico’s spread narrowed nine basis points today to 1.97 percentage points today.
Lawmakers approved at least 10 constitutional amendments in Pena Nieto’s first full year in office. The government has said that changes to open the oil industry to more private investment will boost growth by 1 percentage point by 2018.
Mexico’s gross domestic product will expand 3.42 percent this year after projected growth of 1.28 percent in 2013, according to analysts surveyed by Bloomberg.
“The rules of the game have been redefined” in Mexico, Mauro Leos, an analyst at Moody’s, said in a telephone interview.
“If over time, in a two- or three-year horizon, we see the impact of the reforms is significant and leads to higher growth or better fiscal indicators than what we currently expect, that could lead to an even higher rating.”
Peso Strengthens
The ratings company’s bullishness mirrors that of Bill Gross, Pacific Investment Management Co.’s founder, who said last week the nation is “still the best of the emerging markets,” even as it’s caught up in an onslaught of selling.
Mexico’s new rating from Moody’s is one step higher than comparable levels at Fitch Ratings and Standard & Poor’s.
Fitch would need to see faster growth in Latin America’s second-biggest economy relative to higher-rated peers before increasing the rating, analyst Shelly Shetty said today in an e-mailed statement.
The peso, which had weakened before yesterday’s announcement, strengthened 0.3 percent yesterday. Yields on the country’s benchmark peso-denominated notes due in 2024, of which Pimco is the biggest holder, tumbled 0.11 percentage point to 6.58 percent yesterday. Yields fell 0.06 percentage point today to 6.52 percent.
Should Climb
Almost half the time, government bond yields fall when a rating action suggests they should climb, or they increase even as a change signals a decline, according to data compiled in 2012 by Bloomberg on 314 upgrades, downgrades and outlook changes going back as far as 38 years.
The rates moved in the opposite direction 47 percent of the time for Moody’s and for S&P. The data measured yields after a month relative to U.S. Treasury debt, the global benchmark.
Rafael Elias, a New York-based analyst at Credit Agricole, said that the upgrade should bolster bonds of the state-owned oil producer, Petroleos Mexicanos, known as Pemex.
The yield on Pemex’s 2023 dollar bonds fell 0.11 percentage point yesterday to 4.71 percent, the biggest drop since Sept. 16, according to data compiled by Bloomberg.
The yield dropped 0.12 percentage point more today. “This will positively affect Pemex and other investment-grade Mexican names and should draw in more investments,” Elias wrote in a note to clients.
bloomberg.com
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