Hot on the heels of the successful 100-year bond issued by utility giant EDF in late January (the first of its kind in sterling), Mexico followed suit last week in raising £1bn from investors with a bond maturing in 2114, priced to yield 5.75%*. Typically, these bonds are issued by high quality companies and governments given the long time horizon, and have been supported by demand from investors looking for higher yielding investments and those with long-dated liabilities (the Mexico 100-year bond has a duration of 18 years). The new issue proved popular, attracting a £2.2bn order book for a £1bn bond issue. This is the second time Mexico has raised a 100-year bond, following the USD bond in 2010.
Despite the recent uncertainties and asset price performance in some emerging markets, Mexico stands out as one of the few countries where fundamental reforms are helping to improve the country’s standing, with rating agency Moody’s upgrading Mexico’s debt to ‘A3’ in February. We believe there is a high probability of further rating upgrades as the other agencies follow suit. The EDF 100-year bond has performed very well since its launch earlier this year and while the risks for a utility are very different from those faced by the sovereign, investor take-up has been supportive. While we have a positive view on Mexico versus its emerging market peers, the extremely long-dated nature of these bonds means that investors also need to be wary of the future path of interest rates, and given the long-term nature of the investor base, the limited liquidity in secondary markets.
*Henderson participated in both the Mexico and EDF 100 year issues within a number of our portfolios.
James McAlevey, Head of Interest Rates at Henderson Global Investors
