Mexico and Hungary Add to Emerging-Market Debt Sale Frenzy

(Bloomberg) -- Mexico and Hungary are tapping global bond markets for the second time this year as developing nations continue to test investor appetite even amid a broad selloff in risk assets.

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Mexico raised €2 billion ($2.2 billion) in sustainable sovereign notes due in eight years at a 4.49% coupon, according to a government statement. The bonds priced Thursday at a spread of about 180 basis points over mid-swaps, tightening from initial price talks of 210 basis points, according to people familiar with the matter, who asked not to be identified because they’re not authorized to speak about it.

The offer comes just weeks after the Latin American country sold $7.5 billion in global dollar notes in its largest deal ever. Mexico has $10 billion outstanding in global markets that is linked to sustainable development goals, the official statement reads.

Hungary, meanwhile, sold €1.5 billion in green Eurobonds at a spread of about 160 basis points over midswaps, according to a person familiar with the matter. That’s on top of $2.5 billion in debt raised from international investors earlier this month. The sales put the country on track to exceed its foreign-currency debt plan for the first half of 2024, according to a presentation published Thursday. It is also planning Samurai and Panda bond issuances in the second half of the year.

Debt sales are piling up across emerging markets — Chile, Saudi Arabia and Slovenia and a handful of companies have all tapped markets so far in 2024, and Ivory Coast is also planning sub-Saharan Africa’s first eurobond sale in almost two years next week. Developing nation governments and corporates have issued around $59 billion in hard currency notes so far this month, according to data compiled by Bloomberg.

“After a slow 2023, this year promises to be a lot more active,” said Mauro Favini, a senior portfolio manager at The Vanguard Group. “Fiscal needs have risen, and outright yields have come down. The combination of these factors provides to be a really good environment for supply.”

The deluge comes even as emerging markets assets slide with policymakers from the US to Europe pushing back on bets for interest-rate cuts ahead, forcing traders to adjust positions. While the backdrop for risky assets has deteriorated, countries like Mexico and Hungary are jumping at the chance to issue now instead of risking worsened conditions amid a swath of elections and geopolitical conflicts.

Read More: Traders Heed Central Bank Pushback Against Bold Rate-Cut Bets

Hungary’s Finance Minister Mihaly Varga said earlier this month the nation had decided to tap markets early in case the favorable yield environment changes. The country likely wanted to take advantage of a respite in its dispute with the European Union, Viktor Szabo, investment director for emerging markets debt at Abrdn, said Thursday.

The European Commission last month decided to release to Hungary €10.2 billion, a third of the funds that were blocked a year earlier for democratic backsliding and graft under Prime Minister Viktor Orban’s rule. Commission President Ursula von der Leyen said the €20 billion still frozen will “remain blocked until Hungary fulfills all the necessary conditions,” including on LGBTQ and asylum rights.

“The release of EU funds and the Green issuance together will probably boost demand, it’s good timing,” Szabo said, adding that a rise in US Treasury yields also forced issuers into action.

Read More: EU Assembly Boosts Pressure to Withhold Funds from Orban

In Mexico, the sales are key as President Andres Manuel Lopez Obrador ramps up spending for his final year in office.

The nation will post its largest fiscal deficit since 1988 as AMLO increases cash aid programs and seeks to finish landmark projects ahead of June elections. That’s a major shift from his previous fiscal austerity, which acted as a stabilizer for the currency in recent years.

“Financing requirements this year are relatively higher for Mexico,” said XP senior strategist Marco Oviedo. “They probably want to tap the external channels as much as possible to avoid over pressuring the domestic markets.”

--With assistance from Vinícius Andrade.

(Updates with coupon amount, official statement in second paragraph)

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