Bonds or credits? Risk management and sovereign lending in the Euromarkets: Evidence from Mexico, 1973–1982

This paper examines sovereign lending to Mexico in the Euromarkets during the decade preceding the 1982 international debt crisis, focusing on the interaction between syndicated bank credits and international bonds. While existing scholarship has largely treated Eurocredit and Eurobond markets as separate channels of sovereign finance, this article shows that, in Mexico’s case, they were closely intertwined and jointly shaped by the strategies of international banks. Drawing on original datasets covering all syndicated credits and Eurobond issues to Mexico during this period, complemented by bank-level evidence and archival material from Lloyds Bank International, we demonstrate that leading international banks arbitrated between bonds and credits in response to changes in country risk and macro-financial conditions. During periods of heightened distress, banks moved away from direct lending towards bond issuance, expanded syndicates, and reduced individual exposures as part of coordinated risk-management strategies. The analysis also uncovers a hierarchy in international lending in which leading market-making banks shaped access to sovereign finance while reallocating risk across instruments and institutions globally.