Background on Cetes and Banco de México
Certificados de la Tesorería de la Federación (Cetes) are interest-bearing securities issued by the Mexican government to finance public debt. Banco de México (Banxico), the country’s central bank, conducts weekly auctions for these Cetes. The interest rates on Cetes serve as a benchmark for other interest rates in Mexico and are crucial indicators of the bank’s monetary policy stance.
Recent Auction Results
In the latest weekly auction of government securities, Banxico observed a decrease in interest rates for Cetes. This development aligns with market expectations of an upcoming reduction in the benchmark interest rate during Banxico’s policy meeting on Thursday.
Cetes 28-day Interest Rate
The 28-day Cetes interest rate dropped to 7.20%, a decrease of 0.05 percentage points, with a total amount of 7,000 million pesos auctioned off. The demand for this instrument was 2.60 times the amount offered, marking its second consecutive fall and reaching levels last seen in June 2022.
Cetes 91-day Interest Rate
Banxico also auctioned 7,000 million pesos worth of Cetes with a 91-day term at a rate of 7.50%, down 0.03 percentage points from the previous issuance, and a demand of 3.92 times the amount offered.
Yearly Trend in Cetes Interest Rates
Throughout 2023, Cetes interest rates have experienced a significant decline. According to Monex Casa de Bolsa data, the 28-day Cetes interest rate has retreated by 254 basis points, while the 91-day Cetes rate has decreased by 229 basis points.
Anticipation of Monetary Policy Meeting
Two days prior to Banxico’s monetary policy meeting, investors anticipate that the bank’s governing board members will apply another 25 basis points reduction to the benchmark interest rate. This would lower the cost of money from 7.75% to 7.50%.
Potential Impact on Interest Rates
If confirmed, this would be the third consecutive reduction in 2025, reinforcing expectations that interest rates will continue to fall by year-end. Citi’s survey of expectations indicates that participants anticipate the policy interest rate will close 2025 at 7%.
Additional Auction Details
In the same auction, Banxico also issued Cetes with 175 days maturity for 14,600 million pesos at a rate of 7.57%, down 0.09% from the previous issuance, with a demand of 3.07 times the amount offered.
Furthermore, 18,000 million pesos worth of Cetes with a 707-day term were auctioned off at a rate of 7.89%, a decrease of 0.18 percentage points from the last issuance, with demand being 2.26 times the amount offered.
Key Questions and Answers
- What are Cetes? Cetes, or Certificados de la Tesorería de la Federación, are interest-bearing securities issued by the Mexican government to finance public debt.
- Why are Cetes interest rates important? The interest rates on Cetes serve as a benchmark for other interest rates in Mexico and are crucial indicators of Banxico’s monetary policy stance.
- What is the significance of the recent Cetes auction results? The falling Cetes interest rates suggest that Banxico may reduce its benchmark interest rate in the upcoming policy meeting, lowering the cost of money.
- What is the expected impact on Mexican interest rates in 2025? According to Citi’s survey of expectations, participants anticipate the policy interest rate will close 2025 at 7%.
