You read that correctly. Even the wealthy are taking a beating.
Want to save this for later? Add it to your Queue!Slim Bonds Beating Government Notes on Push for Safest Debt: Mexico Credit
America Movil SAB’s bond yields are
falling faster than Mexico’s as more investors turn to the
wireless carrier controlled by billionaire Carlos Slim for
refuge from the global sell-off than the government.
The yield on America Movil’s dollar bonds due in 2020 fell
51 basis points, or 0.51 percentage point, in the past month to
3.66 percent, according to data compiled by Bloomberg. Yields on
Mexico’s notes due the same year dropped 35 basis points in the
same period to 3.61 percent, while borrowing costs for the
country’s companies overall fell one. Global investment-grade
corporate debt yields sank 18 basis points in the past month to
3.57 percent, Bank of America Merrill Lynch index data show.
America Movil is luring investors seeking the safest assets
as slowing global growth and Standard & Poor’s downgrade of the
U.S. credit rating spark a rout in global equity markets. The
Mexico City-based company, which has $7.5 billion of cash on
hand, is rated A2 by Moody’s Investors Service, five levels
above speculative grade and two steps higher than the Mexican
government.
“There’s a substantial fear in the market in relation to
the sovereign debt of a lot of developed countries, obviously
Europe and now the U.S.,” Eduardo Cortes, who helps manage $1.5
billion of debt at Gia Partners LLC in New York, said in a
telephone interview. “One of the big question marks for
investors is: Where do you go? America Movil is one of the
preeminent credits in a region that would be considered to be in
good shape.”
Yields on America Movil’s $2.1 billion of 5 percent notes
due in 2020 fell to 3.57 percent on Aug. 4, the lowest level
since the company issued the securities in July 2010, according
to data compiled by Bloomberg.
U.S. Downgrade
An America Movil official who asked not to be identified in
accordance with company policy declined to comment.
U.S. stocks sank the most since December 2008 yesterday,
while Treasuries rallied and gold surged to a record, as S&P’s
reduction of the nation’s credit rating to AA+ fueled concern
the economic slowdown will worsen. The Dow Jones Industrial
Average plunged 634.76 points as about $2.5 trillion was erased
from global equities.
Mexico’s IPC stock index fell the most in almost three
years yesterday, while yields on the benchmark peso bonds due in
2024 rose the most since June. Mexico sends about 80 percent of
its exports to the U.S.
America Movil, the biggest wireless carrier in the
Americas, is “still one of the most solid telecom companies in
the world,” Mark Christensen, who helps manage $500 million in
emerging-market debt at Doubleline Capital LP in Los Angeles,
said in a telephone interview. “You’re seeing a very solid
blue-chip, low-yielding bond trading lockstep with Treasuries.”
Default Swaps
A press official at the Finance Ministry didn’t immediately
return a call seeking comment.
The extra yield investors demand to hold Mexican government
dollar bonds instead of U.S. Treasuries fell 10 basis points to
160 as 8:11 a.m. New York time, according to JPMorgan Chase &
Co.
The peso fell 1 percent to 12.4484 per dollar.
Yields on futures contracts for the 28-day TIIE interbank
rate due in August fell four basis points yesterday to 5.02
percent yesterday, indicating traders expect the central bank
will wait until that month to raise benchmark borrowing costs
from a record low 4.5 percent.
The cost to protect Mexican debt against non-payment for
five years rose 24 basis points yesterday to 153, according to
CMA. Credit-default swaps pay the buyer face value in exchange
for the underlying securities or cash equivalent if the issuer
fails to comply with debt agreements.
America Movil’s bonds would slump if the U.S. economy
relapses into recession, said Lazlo Belgrado, who helps manage 5
billion euros ($7.1 billion) of emerging-market debt, including
America Movil securities, at KBC Asset Management SA in
Luxembourg.
Concern the expansion in the world’s biggest economy is in
jeopardy deepened last week after reports showed it grew less
than forecast in the second quarter. Goldman Sachs Group Inc.
last week cut its growth forecast for Mexico.
“If this were to become a double dip, then even the safest
things are way too tight right now,” Belgrado said in a
telephone interview, referring to the possibility of another
recession. “If that scenario happens, America Movil should
widen as well.”
Debt sold by America Movil is gaining even after the
company on Aug. 1 offered to buy the 40.4 percent of Telefonos
de Mexico SAB it doesn’t already own for $6.5 billion, giving it
full control of its former parent.
Stock Slump
“Yes, this could cause greater indebtedness,” said Mario Copca, an analyst at Vanguardia Casa de Bolsa SA in Mexico City.
“But this is a company that generates greater sales than any
other publicly traded company in Mexico. It gives you the
security that they won’t have problems in the short-term.”
Sales at America Movil rose 7.8 percent to 160 billion
pesos ($13 billion) in the second quarter. Net income climbed 14
percent to 24.2 billion pesos, the company said July 20.
The plan to acquire the remainder of Telmex, as the fixed-
line company is known, has fueled a 7.8 percent decline in the
company’s stock. Slim’s stock portfolio lost about $11.6 billion
this month to $59.5 billion yesterday, according to data
compiled by Bloomberg. Slim was named the world’s richest man
for a second year in a row by Forbes magazine in March.
Standard & Poor’s said on Aug. 3 it doesn’t expect the
purchase of the stake in Telmex to affect America Movil’s A-
rating. Moody’s confirmed its A2 rating and stable outlook on
the company the same day.
America Movil is Mexico’s most-trusted corporate lender and
will benefit from increased demand for higher-rated debt, said
Alonso Madero, who helps manage about $5.5 billion, including
America Movil bonds, at Mexico City-based Corp. Actinver SAB.
“Investors are running and grabbing onto whatever looks
secure,” Madero said in a telephone interview. “Some would
argue America Movil is a better credit than the federal
government.”
To contact the reporter on this story:
Jonathan J. Levin in Mexico City at
jlevin20@bloomberg.net
To contact the editor responsible for this story:
David Papadopoulos at
papadopoulos@bloomberg.net
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