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Mexico's Pemex returned to the dollar market for the first time in close to nine months on Tuesday with a two-part bond as it sought to raise new money and retire debt across its curve.
The borrower is approaching investors with seven and 30-year paper with initial price thoughts of 4.75% area and 6.75% area, respectively.
At those levels, both bonds are seen coming about 60bp wide to the company's curve, where 3.5% January 2023s and the 5.625% 2046s had been trading pre-announcement at 4.17% and 6.17%, respectively.
That appears to be a decent enough concession to draw interest, but given the shaky state of Tuesday's market, Pemex may have little room to tighten from here.
"The market is not supportive so we expect that they will need to maintain a decent concession," said Jason Trujillo, a senior analyst at Invesco.
Broader markets looked fragile on Tuesday as oil slipped in early morning trading amid ongoing uncertainty over monetary policies across the developed world.
"Oil credits remain complicated but we are in a much better place now," said a DCM banker away from the trade.
Concessions may have to be decent also because with increased expectations of a US interest rate hike later this year, investors may be cautious about taking on duration risk, said one investor.
"The balance of risk is pointing to the Fed hiking rates at some point this year, and central banks are taking a more conservative stance (on monetary easing)," said Ricardo Navarro, a portfolio manager at asset management firm Noctua.
"At this point people want to be shorter on duration."
The new bonds were announced on the back of a rally in Pemex's outstanding bonds. The yield on its 6.875% 2026s, which was sold in January near the height of the commodities slump, hit a recent low of 4.70% on Friday down from close to 7% in February, according to Thomson Reuters data.
Pemex will be using proceeds of the new bonds to purchase for cash up to US$1.5bn of US$12.74bn in bonds maturing between 2018 and 2044.
Those investors unable to participate in the cash tender in the event it is oversubscribed can also exchange their bonds for the new 2023s or 2047s being issued on Tuesday.
