Going (way) long on Mexico

Apparently my skepticism about Mexico’s growth outlook is not widely shared among international investors.  I learned this morning that Mexico has sold 100 year bonds denominated in euros!  That is some serious optimism, both about Mexico and the Euro.

So let’s get this straight.  Mexico, a country with a long history of default, issues 100 year bonds in a currency whose very survival is questionable.  Hmm, what could possibly go wrong?  Do investors study history at all?

The article goes on to note that these are not the only centennial bonds that Mexico has raised recently:

“Over the past five years they have extended the equivalent of more than $5 billion of 100-year bonds to Mexico in three currencies: dollars, sterling and now euros. It is the only country to have tapped the so-called centennial market since China and the Philippines in the 1990s, and it has done so at relatively low yields—of 6.1% on its dollar bond in 2010 and just 4.2% on its euro bond last month.”

One optimistic investor argues that Mexico “is one of the few countries that has been fixing the roof while the sun shines.”  A leading Mexico City economist, Gerardo Esquivel, has a decidedly less optimistic take on the situation, likening recent reforms to “putting a bright coat of paint on the exterior of the house, while the inside is rotting away.”  I was cautiously optimistic at the start of EPN’s term, but I’m leaning much more towards Gerardo’s view at this point.