Background on the Mexican Central Bank and its Role
The Banco de México (Bank of Mexico), often referred to as Banxico, is the central bank of Mexico. Established in 1925, it is responsible for implementing monetary policy to maintain price stability and support economic growth. Banxico’s primary tool for influencing the economy is by adjusting short-term interest rates, which indirectly affects long-term borrowing costs.
Recent Mexican Government Bond Auctions
In the latest weekly auction conducted by Banxico, yields on Mexican government bonds, known as Cetes (Certificados de la Deuda del Sector Público), fell for both short-term and long-term instruments. This occurred a day before the Federal Reserve of the United States was set to announce its monetary policy decision.
Short-term Cetes
- 28-day Cetes: The government issued 7,000 million pesos at a yield of 8.55%, which was 10 basis points lower than the previous auction.
- Demand: The demand was 4.13 times the amount issued, an increase from the previous 3.93 times.
Long-term Cetes
- 91-day Cetes: The central bank auctioned 7,000 million pesos at a yield of 8.48%, which was 0.03 basis points lower than the previous auction.
- Demand: The demand was 5.97 times the amount issued, an increase from the previous 4.08 times.
175-day Cetes
- Yield: The government issued 10,000 million pesos at a yield of 8.31%, which was 0.08 basis points lower than the previous offering.
- Demand: The demand was 4.26 times the amount issued, an increase from the previous 3.29 times.
MBono Auction
Banxico also auctioned 16,500 million pesos of the MBono (Bonos del Gobierno Federal) with a three-year maturity and a March 2028 expiration date. The yield was set at 8.42%, a decrease of 0.16 basis points from the previous auction.
- Demand: The demand was 2.24 times the amount issued.
UDIBONOS Auction
Lastly, the Mexican government issued UDIbonos (UD IBONOS) with a 20-year maturity and a November 2043 expiration date. These were sold at a yield of 5.09%, with no change from the previous issuance.
- Demand: The demand was 1.98 times the amount issued.
Investor Expectations and Market Context
Market participants anticipate that the Federal Reserve will maintain interest rates unchanged and possibly resume its rate-cutting cycle in the second half of 2023. Meanwhile, investors expect Banxico to continue its monetary easing process during its upcoming meeting amid concerns about a slowdown in domestic economic activity, despite the potential reduction of the interest rate differential with the United States.
Key Questions and Answers
- What are Cetes? Cetes (Certificados de la Deuda del Sector Público) are Mexican government bonds issued by Banxico to finance the public debt. They come in various maturities, including 28 days, 91 days, and 175 days.
- Why are yields falling? Yields on Mexican government bonds fell due to lower investor expectations of interest rate hikes from Banxico, as well as concerns about slowing domestic economic growth.
- What is the significance of the Fed’s decision? The Federal Reserve’s monetary policy decision influences global financial markets, including those in Mexico. Investors closely monitor the Fed’s actions to gauge potential shifts in interest rates and their implications for emerging markets.
- What are MBonos and UDIBonos? MBonos (Bonos del Gobierno Federal) and UDIBonos are long-term Mexican government bonds with maturities of three years and 20 years, respectively.
