The Daily Update - Rigging, Pemex and record breaking bond sale

Where else would you wish to end the most colourful US Presidential debate in history, but the city of Las Vegas. Yesterday Trump remained his unconventional self calling Clinton a ‘nasty woman’, Clinton bit back declaring Trump ‘the most dangerous person to run for president in the history of America’; apparently quoting her nemesis Bernie Sanders. With just over 18 days left until the election, polls indicate that Clinton is winning the race although Trump is not willing to accept an election loss claiming the results could be ‘rigged’. The election’s proxy currency, the Mexican peso continued its appreciation yesterday and is now one of the strongest performing currencies so far this month having gained ~4.5% against the dollar.

Our positions in state-owned oil company Petroleos Mexicanos have also performed well; with the 6.625% 2035 issue rallying around 5 points so far this month. Held across our global bond portfolios this issue continues to offer a very attractive risk-adjusted return of over 24% and yield above 6%. We calculate that the  bond could rally a further 21.5 points to reach a fair value spread of ~165bps, and has a sufficient 4.5 credit notch cushion.

Yesterday we mentioned that Saudi Arabia launched the largest developing sovereign bond deal on record, at USD 17.5bn. Having heard rumours of a record breaking debt sale from the Kingdom for almost a year, it was no surprise that the deal was 3.8 times oversubscribed. The three tranches rated AA-/A1 were priced at: 5-year UST+135bps, 10-year at 165bps over and the 30-year at +210bps. We added the 10-year and 30-year issues across our portfolios as they offered the most attractive expected returns of 7.8% and 20.4% with yields of 3.4% and 4.6% respectively. We continue to support such bonds from the region’s highly rated sovereign and quasi-sovereign issuers, which have rallied off the back of the Saudi deal, and continue to offer exceptional value and spread cushion.