Weekly Auction Confirms Bet on Half-Point Interest Rate Reduction
In Mexico’s weekly bond auction, investors accepted lower interest rates, aligning with expectations of another half-point reduction in the country’s benchmark interest rate. This move reflects anticipation of policy adjustments by Mexico’s central bank.
Cetes and MBono Performance
Cetes, short-term treasury certificates sensitive to monetary policy changes, saw a downward trend in this auction. These instruments operated at lower rates, preempting the expected interest rate cut by analysts from banks and brokerage firms.
- Cetes (28 days): The government placed 7,000 million pesos in Cetes at a rate of 8%, a decrease of 0.14 percentage points from the previous issue. Demand was 3.62 times the amount placed, higher than the previous 2.51 times.
- Cetes (91 days): The central bank auctioned 7,000 million pesos in Cetes at a rate of 7.93%, a drop of 0.10 percentage points from the previous issue. Demand was 3.40 times the amount placed, lower than the previous 3.52 times.
- Cetes (181 days): The government issued 8,000 million pesos in Cetes at a rate of 8.06%, an increase of 0.03 percentage points from the previous offer. Demand was 2.84 times the amount placed, below the previous 4.1 times.
- Cetes (364 days): The government issued 15,000 million pesos in Cetes at a rate of 8.27%, a decrease of 0.04 percentage points from the previous auction. Demand was 3.76 times the amount placed.
MBono and Udibonos Performance
Banco de México conducted an auction for 15,000 million pesos of the MBono with a 10-year term (maturing in February 2036) at a rate of 9.39%, an increase of 0.08 percentage points from the previous issue. Demand was 1.86 times the amount placed.
The government issued udibonos with a 10-year term (maturing in August 2034) at a rate of 4.99%, an increase of 0.07 percentage points from the previous issue. Demand was 2.59 times the amount placed.
The government also issued 9,600 million pesos in Bondes F with a term of 728 days and an over-rate of 0.14%, with no changes. Demand was 2.16 times the amount placed.
Economists’ Outlook
Following this announcement, economists predict that the central bank will alter the pace of monetary policy adjustments. However, they still expect the benchmark interest rate to drop to 7.50% by year-end.
Relevance of the Auction
Understanding the significance of this auction requires context about Mexico’s central bank, Banco de México (Banxico). As the country’s central bank, Banxico is responsible for implementing monetary policy to maintain price stability. Its primary tool for influencing the economy is by adjusting the benchmark interest rate, known as the Target Rate for Overnight Transactions (T/NIT).
The weekly auction of Cetes and other instruments like MBono and udibonos provides insights into investor sentiment regarding future interest rate changes. When investors accept lower rates, it indicates their expectation of further interest rate cuts by Banxico.
In this particular auction, the lower rates on Cetes and the increase in MBono and udibonos’ rates suggest that investors anticipate another half-point reduction in the T/NIT. This expectation could impact inflation, economic growth, and the Mexican peso’s value.
Key Questions and Answers
- What are Cetes, MBono, and udibonos? Cetes are short-term treasury certificates issued by the Mexican government, sensitive to monetary policy changes. MBono is a benchmark bond with a 10-year term, while udibonos are fixed-income securities with terms ranging from 10 to 30 years.
- Why is this auction significant? This auction reflects investor expectations about future interest rate changes by Banco de México, which can impact inflation, economic growth, and the Mexican peso’s value.
- What does the lower rate on Cetes and higher rates on MBono and udibonos indicate? Investors expect another half-point reduction in the Target Rate for Overnight Transactions (T/NIT), Mexico’s benchmark interest rate, managed by Banco de México.
