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Was there a price to pay?

When Mexico issued its CAC-laden 12-year bond in February, it didn't offer investors a choice: anybody wanting new Mexican debt couldn't buy a bond without CACs instead. So there's no way of knowing for sure whether or not Mexico paid a premium for including CACs.

JPMorgan, Goldman Sachs, and Mexico itself all say that it did not pay a premium. Mexico had issued a highly successful 10-year bond in January, which was trading at about 275bp over the 10-year Treasury when the 2015s priced.

At the time, the Treasury swap curve was very steep, with about 28bp between 10 years and 12 years. Adding that 28bp onto the yield of the 2013s gives a spread of 303bp, which is 9bp below the 312bp over the 10-year Treasury bond at which the new issue priced.

At the same time, however, the Mexican yield curve was also complicated by the presence of a bond maturing in 2016, which was trading at a price of about 135. Because of their high dollar price, the 2016s were trading at 353bp over Treasuries when the 2015s priced, offering investors a bond with pretty much identical duration and significantly higher yield.

Taking into account the 2016s, then, the 2015s can be seen as pricing more or less on the Mexican yield curve - or at least as paying no more than a standard new-issue premium.

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