Mexico

True believers in Petroleos Mexicanos are fueling a rally in its bonds, reckoning that government support for the beleaguered state-owned company will ultimately provide a backstop from any troubles, Bloomberg News reported. Investors including MetLife, Pictet and SMBC Nikko Securities say Pemex’s bonds were overly punished last year amid concerns the government isn’t doing enough to address the company’s problems. The challenge of falling production given Pemex’s $108 billion of debt and high taxes is real, but optimists argue its yields shouldn’t be much above sovereign notes.

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Petroleos Mexicanos bonds cratered after Fitch Ratings downgraded the state-owned company to just a notch above junk, spurring a slide in sovereign debt and the peso, Bloomberg News reported. The yield on Pemex bonds due in 2027 rose 28 basis points to 7.251 percent at 1:02 p.m. in New York, after jumping as much as 40 basis points earlier in the day. Its five-year credit default swaps climbed 24 basis points to 319. Fitch cut the embattled oil producer’s long-term issuer default rating two notches to BBB- from BBB+ and maintained its negative outlook.

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The Mexican government, labor and business sectors agreed Monday to raise the minimum wage by 16.2% in 2019, a third consecutive year of double-digit increases aimed at restoring the purchasing power of the country’s lowest earners, the Wall Street Journal reported. The minimum wage will rise to 102.68 pesos ($5.10) a day from 88.36 pesos on Jan. 1, while along the northern border with the U.S. the minimum daily wage will double to 176.72 pesos ($8.80), said Labor Minister Luisa María Alcalde.
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Holders of about half of the $6bn in debt issued to finance a Mexico City airport project that is now destined to be scrapped rejected the government’s enhanced proposal on Wednesday, saying it was better, but still nowhere near good enough, the Financial Times reported.

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The Mexico City Airport Trust – the financial backer of a new Mexico City airport project that President Andrés Manuel López Obrador has vowed to scrap– has boosted the terms of its bond buy-back offer to try to woo the approximately 50 per cent of bondholders who rejected the initial deal, the Financial Times reported. The new deal offers to buy back $1.8bn of the $6bn in bonds as before.

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Investors in Mexico City’s planned airport project want a lot more from the government before they agree to its buyback offer, Bloomberg News reported. An explicit federal guarantee to honor the debt would go a long way toward resolving concerns, according to chats with more than half a dozen bondholders who asked not to be identified before any formal talks are held.

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Holders of more than $1bn of the bonds issued to finance a new Mexico City airport that President Andrés Manuel López Obrador wants to scrap have rejected an offer by the government to buy back some of the debt, the Financial Times reported. The bondholder group said it could not support the plan, which would also alter the terms of the remaining debt — bonds that currently have a claim on revenues from the new airport.

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On the eve of the inauguration of Andrés Manuel López Obrador as Mexico’s next president, his administration is looking to restructure $6bn worth of bonds backing the partly completed Mexico City airport whose future was put in doubt in October, the Financial Times reported. “We will begin negotiations to seek a fair treatment with investors and to respect their rights as bondholders,” said an aide to Arturo Herrera, incoming deputy finance minister. A plan could be announced as soon as Monday, according to people familiar with the matter.

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Mexico City’s airport bonds finally showed signs of stabilizing Wednesday after President Andres Manuel Lopez Obrador caught investors by surprise with his decision to scrap the controversial project, Bloomberg News reported. Still, at just 80 cents on the dollar now, the bonds have had a rough October. Prices on the 30-year debt are down 3 cents this week and 9 cents this month, a slump that pushed the yield up over 7 percent.

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Mexico’s credit risk is at the highest level since the days after Donald Trump’s inauguration. Five-year credit-default swaps that hedge against a drop in the value of Mexico’s sovereign debt have soared as the July 1 presidential election nears, Bloomberg News reported. Leftist Andres Manuel Lopez Obrador holds a commanding lead in the polls, and traders are concerned his victory could upend the economy just as the country is roiled by increasing trade tensions with the U.S. Other Mexican assets are also showing signs of stress as the election approaches.
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