Investors punish Mexico with high interests

Investors that currently lend money to the Mexican government are charging higher interest rates than during the economic crisis of 2008-2009 due to the uncertainty generated by the future actions of Mexico’s upcoming government in the legislative and executive powers . Investors had feared, among other things, higher inflation levels since it was rumored that the Bank of Mexico would raise its benchmark interest rate by 25 basis points , which was confirmed by the banking institution today via Twitter .

Interest rates for the so-called “M” bonds , which are issued by the federal government , have reached their highest level in a decade. This week, Mexico’s Ministry of Finance and Public Credit (SHCP) conducted an auction for bonds maturing in 2021 at a fixed rate of 8.68% annually .

Until the end of October 2007 , the federal government had not offered lenders such high yields for three-year bonds on the primary market , according to the central bank.

As for the secondary market , where these financial instruments are resold among investors, the same bonds were sold at a rate of 8.76% , according to Reuters .

These bonds are the debt financial instruments that are most used by the federal government, representing four out of every ten Mexican pesos that were circulating in government securities starting this month.

10-year yield bonds are the most liquid and the best indicator for investors

. This type of bond showed a return rate with an increase of seven basis points, rising to 9.11% in the secondary market, which represented the highest interest rate since March 2009 .

An analyst from MetAnálisis, Gerardo Copca

, claimed that higher interest rates mean that not only the government will have to pay higher interests to issue government debt , but also companies and physical persons with variable rate credit .

Furthermore, he explained that the rise in interest rates is partly due to the fact that investors are currently looking to sell bonds with lower rates so that they can buy financial instruments with higher yields, given the decision taken by Banxico today.

According to Copca, the decision to cancel the New International Airport in Texcoco , as well as the initiative to eliminate certain banking commissions have resulted in mistrust among investors who are now demanding higher yields in exchange for placing their capital in Mexico.

“A weak exchange rate and a stock market collapse are sure signs of uncertainty and mistrust of investors towards Mexico’s upcoming government,” Copca claimed. He explained that interest rates are also going up because inflation levels are surpassing market projections. This is combined with international uncertainty surrounding the trade war between the United States and China .

Copca believes that interest rates could keep going up should Mexico’s financial environment continue to deteriorate .

The Financial Analysis director of Banco Base, Gabriela Siller , stated that interest rates for government bonds are increasing because investors anticipate the Mexican peso to grow weaker against the dollar in the near future.

She estimated that the Bank of Mexico’s decision to increase interest rates would give some relief to the exchange rate , though she anticipated that Mexico’s financial markets would continue to be affected by the future actions of the left-wing party Morena a few days before Andrés Manuel López Obrador takes office.

Yesterday, the U.S. dollar was sold at 20.70 pesos in CitiBanamex

, and the Mexican Stock Exchange dropped for three days and ended up with 42,344 points , its worst level since January 2016.

Mexican airlines and airport groups report MXN$22 billion drop

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