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 Business News | July 2007 
Mexico's Rating Outlook Raised by S&P, Sparking Rally
 Valerie Rota - Bloomberg
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| | Mexico's credit rating outlook was raised to positive from stable by Standard & Poor's, fueling a surge in the country's currency, stocks and government bonds. |
Mexico's credit rating outlook was raised to positive from stable by Standard & Poor's, fueling a surge in the country's currency, stocks and government bonds.
S&P, which rates Mexican foreign debt BBB, the second- lowest investment-grade rating, said the change in outlook was driven by the country's efforts to reduce its foreign debt and by expectations congress will approve legislation to bolster tax collection. S&P rates Mexico's local debt A, the sixth-highest rating.
President Felipe Calderon's success in getting the opposition-controlled congress to approve a tax bill "will be key in driving the next potential rating upgrade," Joydeep Mukherji, a sovereign ratings director at S&P, said in a telephone interview from Mexico City.
The yield on the government's benchmark 10-year peso bonds fell 7 basis points, the most in two months, to 7.65 percent. The bond's price, which moves inversely to the yield, rose 0.44 centavo to 97.31 centavos per peso, according to Santander Central Hispano SA.
The yield on Mexico's 5 5/8 percent dollar bonds due January 2017 fell 7 basis points, or 0.07 percentage point, to 5.85 percent, according to JPMorgan Chase & Co. The price rose 0.5 cent on the dollar to 98.4 cents.
The move by S&P comes a year after Calderon won the closest election in the country's history. Claims of fraud by rival Andres Manuel Lopez Obrador, whose Party of the Democratic Revolution is the second-biggest in congress, spurred concerns the government would face six years of legislative gridlock.
Building a Coalition
Calderon, from the National Action Party, has turned to the Institutional Revolutionary Party to garner support for his proposals. In March, congress approved a bill to cut government spending for pensions, breaking a logjam that stymied predecessor Vicente Fox.
Calderon now seeks to boost Mexico's tax revenue by 3 percent of gross domestic product over the next six years as part of a plan to reduce dependence on income from oil exports as production declines.
"The tax proposal is progressing and will get approved sooner or later," said Alonso Madero, who oversees 10 billion pesos ($929 million) in assets at Mexico City-based pension fund manager Actinver SA. "Things are looking good."
Madero expects the yield on the 10-year fixed-rate maturity denominated in pesos to fall to 7.3 percent by December after congress approves the tax overhaul and inflation slows.
Mexico peso rose 0.5 percent to 10.7577 per dollar. The Bolsa index of the 35 most-traded stocks on the Mexican exchange rose 0.9 percent to 31,420.69.
To contact the reporter on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net |
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