June 11, 2020 / 7:46 PM / a month ago

Mexico bonds sell off for third month in May as other emerging markets recover

MEXICO CITY, June 11 (Reuters) - Bond investors are gradually returning to emerging markets after the coronavirus crisis subsides, but Mexico has been swimming against the current, with outflows for a third straight month in May from Latin America’s second-largest economy.

Foreign investors sold Mexican bonds worth some 34.85 billion pesos ($1.49 billion) in May, after selling $12.44 billion in March and April, official data showed.

Forecasts for a deep recession, President Andres Manuel Lopez Obrador’s unorthodox economic management and concerns the sovereign credit rating could be downgraded have crimped appetite for Mexican debt, analysts said.

“In recent weeks there has been a stabilization of inflows to emerging markets, but in Mexico they continue to decline, suggesting there is an idiosyncratic element,” said Andres Jaime, currency and debt strategist for emerging countries at Morgan Stanley.

“Mexico had an advantage a few years ago because it had quite solid macroeconomic management, but that has changed recently,” he added.

Investors have complained about the president’s economic policies, which have included the use of public referendums to upend billions of dollars in private investments, and a preference for state involvement in the energy sector.

The Mexican economy had already slipped into a slight recession in 2019 and is now expected to contract by 10% or more this year, investment banks estimated, reeling from the COVID-19 crisis.

Foreign investors “are reducing their exposure to Mexico,” said Jaime. Mexico already must pay more to issue debt in international markets, he added.

Mexico, which holds an investment grade rating, issued $2.5 billion in debt with a 5% yield-to-maturity in April, while much smaller Paraguay, which is rated speculative grade, or junk, issued $2 billion at a yield-to-maturity of 4.95%.

$1 = 23.4159 Mexican pesos May average Reporting by Abraham Gonzalez; Writing by Anthony Esposito; Editing by David Gregorio

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