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Capital Markets

Mortgage-backed securities: Coughs and sneezes fail to spread diseases

Historically, when the US sneezes, Latin America catches a cold, and Mexico comes down with hypothermia. So what on earth is going on in the market for mortgage-backed securities?

In the US, mortgage-backed bonds are imploding, causing losses estimated at well over $100 billion, and raising worries about the viability of the US economy as a whole. That’s much more than a sneeze. But in Latin America, the market in mortgage-backed bonds continues to go from strength to strength.

In July, for instance, Colombia’s Titularizadora priced $192 million-worth of mortgage-backed bonds, denominated in Colombian pesos, at a yield of 10.14%, and with a final maturity of as long as 15 years.

In Mexico, the news was even more impressive: state-owned mortgage lender Infonavit placed $250 million of mortgage-backed bonds denominated in UDIs, or inflation-indexed Mexican pesos, at a real yield of just 4.28% and with a maximum term of 22 years. The issue is the biggest Latin American mortgage-backed bond yet.

In both cases, the investors were entirely local, with domestic pension funds taking a large chunk of the deals. Foreign investors weren’t even courted, despite their historical propensity to buy local paper at lower yields than domestic institutions are sometimes willing to accept.

The fact is that local debt markets in Colombia and Mexico have already matured to the point at which foreign investors are no longer necessary.

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