Mexico City.- At the latest auction of government securities, 10-year fixed-rate bonds had their highest yield so far this year, revealing that there is a greater risk for the Mexican economy, experts said.
At the auction on July 2, the yield on 10-year bonds was 9.95 percent, an increase of 56 basis points compared to the closing level of 2023, according to data from the Bank of Mexico (Banxico).
Gabriela Siller, director of Economic Analysis at Grupo Financiero Base, said that the rise in interest rates for this financial instrument reveals a greater risk for the Mexican economy.
“What we have seen is that since the elections the rate of the instruments has had to rise. This increase reveals that there is greater risk for the economy, for two reasons: the high budget deficit and the reforms, particularly those of the Judiciary.
“The high budget deficit is a risk because it increases the probability of credit rating cuts on Mexico’s sovereign debt. If a rating agency cuts Mexico’s rating, there will be fewer people willing to take out this bond,” he explained.
If there is fear about Mexico, then there is less demand for these instruments and with this a higher risk premium must be paid, he added.
“This higher risk premium is reflected in a higher interest rate, which is why it is also said that the interest rate is a measure of the risk of an economy,” he added.
There are different types of government instruments, but all of them, like the 10-year bonds, are debt in pesos issued by the government and can be purchased by both locals and foreigners, he explained.
The interest rate of financial instruments depends on several factors, including expectations regarding Banxico’s interest rate and how much debt the Government is issuing.
BBVA Research indicated in a report last week that the reform of the Judicial Branch could have significant impacts on investment.
In addition, he anticipated that due to this reform and the presidential elections in the United States, the peso will continue to show volatility as it will be subject to greater uncertainty for the rest of the year.
Mariano Calderón, an expert in constitutional controversies at the firm Santamarina y Steta, said in an interview that the coming weeks will be marked by political pressures over the dilemma of carrying out a profound reform for the better or eliminating checks and balances and the autonomy of the Judiciary.
“If this becomes a reality, it will be crucial to observe the selection processes for each of the positions of judges and ministers, as well as secondary legislation.
“That’s where we’ll see the depth of a solid reform, or the submission of the judiciary,” Calderón said.
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