(Bloomberg) -- Mexico is planning to raise funds through Samurai bonds for the first time in nearly two years, joining Slovenia in considering taking advantage of Japan’s still relatively low yields to sell debt.
Mexico is marketing six tranches of yen notes ranging from three years to 20 years and may price the deal Thursday, according to a person familiar with the matter.
The announcement suggests that even after the Bank of Japan ended its radical monetary easing measures this year, yen borrowing costs are still attractive for overseas borrowers. At the same time, yen debt of emerging-market sovereigns — Indonesia sold Samurai notes in May - provides investors with an opportunity to earn extra yields compared with many local issuers.
“Mexico is always looking to diversify its external bond sales,” said Carlos Capistran, an economist at Bank of America in New York. “It benefits Mexico, in terms of diversification - not only because of the currency, but also because of the investor base.”
Mexico is tapping a market that’s seen sales decrease from their peaks in the 2010’s as runaway inflation around the world and debt market routs sapped Japanese investor demand for riskier assets. Samurai bond sales has fallen about 23% so far this year, according to data compiled by Bloomberg.
Mexico wants to keep accessing the Japanese market, according to Daiwa Securities Co., one of the underwriters. Volatility has been intense due to the BOJ’s rate hike and concerns about the stagnant US economy, but the issuer decided to make an announcement of the deal after markets seemed to stabilize, according to the brokerage.
In the currency market, Japanese retail investors have cut bullish bets on the Mexico peso against the yen, according to data on the Tokyo Financial Exchange’s Click 365 platform. That was one of the most popular trades before risk aversion and the yen’s sharp rebound since July sapped investor demand.
Mexico has issued Samurai notes roughly every two years, Bloomberg-compiled data show. Yields on its 2042 bonds - the longest maturity outstanding - have climbed to about 3.57% from around 2.5% when they were sold two years ago.
Still, even as inflation moderates worldwide and bets rise that the Federal Reserve will signal it’s ready to start cutting interest rates, US benchmark 10-year yields remain much higher than their Japanese equivalents, at around 3.87% versus 0.885%.
Mexico is planning to use the funds it raises on projects tied to United Nations Sustainable Development Goals, according to Mizuho Securities Co., another of the underwriters.
--With assistance from Daisuke Sakai, Joshua Robinson, Maria Elena Vizcaino and Philip Sanders.
(Adds tentative pricing date in second paragraph, analyst comment in fourth)
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