New | 100 years of Mexico and euro risk for investors to contemplate

One hundred years is a long time to be a lender to Mexico, as those who remember the 1980s, a decade during which it was mostly in default, will tell you.

One hundred years is arguably an even longer time to hold euros, a flawed single currency with a short history and a non-minimal chance of a changing line-up, not in decades but potentially, considering Greece, in a matter of months.

That’s what makes Mexico’s highly successful offering last week of ¤1.5 billion (HK$12.4 billion) of debt due in March 2115, carrying a yield of only 4.2 per cent, so fascinating.

The sale reflects positive developments, notably Mexico’s long-term development as something a cut above the old concept of an emerging market; reasonably well managed fiscally, with stable growth and having an increasingly flexible economy.

But by any measure, the deal is unprecedented: the sale of 100-year debt, in euros, a foreign and beleaguered currency, by Mexico reflects not simply the triumph of globalisation and markets but an extraordinary willingness by investors to take on risk in exchange for a bit of extra yield.

That willingness, driven by very low global interest rates and by the bond-buying programme of the European Central Bank, has brought on truly incredible financing conditions. Huge swaths of the sovereign debt in the euro zone trades at negative interest rates, and more than two-thirds of euro corporate debt yield less than 1 per cent.

So first, the positive. Mexico’s timing is superb and there is a lot to be said for locking in funds for 100 years when interest rates are at multi-generational lows. As treasury management, this is an achievement. Mexico also seems a far better bet than it was 10 years or more ago to manage itself prudently. Standard & Poor’s raised its foreign currency rating to BBB+ last year, and cites, among other things, Mexico’s decision to open up its energy industry to foreign investment, a move which will make its sclerotic oil industry bigger, more efficient and a better long-term generator of tax takings.