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Pemex targets triple-tranche bond as markets digest FOMC minutes

Jul 11, 2013

Pemex is poised to grab an issuing opportunity as markets respond to Wednesday’s US FOMC meeting minutes, becoming the first Latin borrower to sell a dollar bond since May.

Pemex is poised to grab an issuing opportunity as markets respond to Wednesday's US FOMC meeting minutes, becoming the first Latin borrower to sell a dollar bond since May.

Pemex opened books Thursday morning for a three-tranche bond issue, comprising five-year fixed and floating rate bonds and a long 10-year note.

The deal is set to be the first plain-vanilla dollar bond by a Latin American borrower since Santander Chile sold a $250m bond on May 31. The Mexican oil company was last in the dollar market in January, selling a $2.1bn 10-year fixed-rate note to yield 170 basis points over US Treasuries.

The new transaction came as US Treasury rates rallied and investors sold dollars following comments from the US Federal Reserve. The 10-year UST was changing hands at 2.57% yield on Thursday morning, in from 2.7% at Wednesday's close.

Minutes from the Federal Open Markets Committee's June meeting released Wednesday indicated less consensus than expected over how the US will taper its unprecedented $85 billion a month quantitative easing (QE) program.

Barclays described Wednesday's minutes as confusing, saying they indicated members were concerned about disinflationary trends and wanted to see more improvement in the labor market before beginning to roll off QE.

"Although these positions may sound obvious, they were not clear at the June meeting and are somewhat inconsistent with the degree of certainty communicated about the likelihood of tapering purchases in the next several meetings (or months) as suggested by the chairman and many other FOMC participants in speeches leading up to the meeting."

But the bank says it still expects the Fed to begin cutting the size of its QE program in September, to $70bn per month.

Analysts at Société Générale took a similar view, saying the "remarkably strong" moves in global emerging markets overnight came as markets interpreted Bernanke's comments as a sign that the Fed would delay the wind-down of QE. "Yet we are not convinced. While the strength of the move suggests that this rally may continue in the near term, we do not believe that this is the right way to position strategically."

Despite a near term pause in the rise of yields on USTs, SocGen believes the 10-year could rise as high as 3.5% over the next six to 12 months. LF



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