Mexico, Latin America's second-largest economy behind Brazil,
has a sovereign credit rating of BBB on the Standard & Poor's
scale. That is barely investment grade, but with little chance
that rating will be altered for the worse, investors have been
embracing Mexican bonds.
When yields on peso-denominated bonds due in 2022 closed at
5.09 percent on Monday, it was the lowest closing yield since
according to Bloomberg
. Falling yields mean rising prices, indicating that Mexican
bonds have perhaps morphed from yield play to capital
Home to benign inflation, the lowest tax rate in the OECD and
a record-low benchmark interest rate of 4.5 percent, Mexico's
borrowing costs are low. Earlier this month, the country sold
$1.5 billion worth of 30-year dollar-denominated bonds at just
4.19 percent. Demand was for twice of that amount
with most of that demand coming from the U.S.
For those that need more convincing that Mexican bonds merit
consideration, remember that
PIMCO's Bill Gross has spoken glowingly about
. Last year, Gross named Mexico among the "clean dirty shirt"
sovereigns along with the U.S. and Brazil.
PIMCO is biggest holder of Mexican fixed-rate bonds due in
2021, 2022 and 2024,
according to Bloomberg
Investors looking to tap into the attractiveness of Mexican
debt can do with the following
Market Vectors LatAm Aggregate Bond ETF (NYSE:
) BONO has just $26.1 million in assets under management, a low
enough number to keep devotees of superficial ETF metrics away.
However, focusing on that number ignores some other crucial
such as the fact that BONO's AUM total has more
than tripled since October 2012
Another important statistic, in addition to BONO's trailing
12-mont yield of 4.79 percent, is that peso-denominated issues
account for 14.5 percent of the ETF's weight. Overall, Mexico
represents nearly 29 percent of BONO's weight.
Bottom line: BONO has one of the largest allocations to
Mexican sovereigns of any ETF on the market today. The ETF's
average modified duration is 6.1 years
SPDR Barclays Emerging Markets Local Bond ETF (NYSE:
) The SPDR Barclays Emerging Markets Local Bond ETF is a somewhat
unheralded option in the
booming sub-segment that is local currency
emerging markets bond ETFs
. However, that has not stopped EBND from returning over five
percent in the past year.
EBND features a current yield, the market value weighted
average current coupon of the bonds in the portfolio divided by
current market price of the bonds in the portfolio, of 5.65
percent and a modified adjusted duration of 4.98 years. Forty-two
percent of EBND's portfolio is rated AA or A, so this fund does
present significant credit risk to investors.
Mexico is the ETF's third-largest country weight at 8.63
percent, trailing only South Korea and Brazil. Other top-10
country exposures include Poland, Thailand and Russia.
Market Vectors Emerging Markets Local Currency Bond ETF (NYSE:
) The Market Vectors Emerging Markets Local Currency Bond ETF is
one of the kings of the emerging markets local currency bond ETF
arena. That dominance is solidified not only be a 6.5 percent
jump over the past year, but a rapid accumulation assets that has
seen the ETF's AUM total jump to
Without a Mexico-specific bond ETF trading in the U.S., EMLC
is a credible option for investors looking to get exposure to the
country's bonds because the ETF allocates 10 percent of its
weight to the country. That puts Mexico in a tie with Brazil,
Poland and South Africa as the largest weights in the ETF.
Importantly, EMLC is useful beyond its exposure to Mexico. The
ETF is a legitimate capital appreciation play in 2013 on the
potential for higher credit ratings for
Turkey and the Philippines
, two countries that combine for over 11 percent of the fund's
Nearly 60 percent of EMLC's holdings are rated investment
grade and the fund's average modified duration is five years.
For more on ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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