Market Snapshot
Mexico’s central bank held interest rates steady at 11.25% in December 2023. The Bank of Mexico has kept the rate unchanged since March 2023. Market participants are expecting rate cuts in 2024. The inflation rate was up to 4.66% in December 2023, compared to 4.45% at the end of Q3 2023.
Yield on all S&P/BMV Fixed Income Indices trended down for Q4 2023. Yields remained unchanged or declined slightly on the sovereign bond and floating rate indices, while quasi-sovereign, inflation-linked, corporate and Eurobond indices saw declines.
For 2023, the S&P/BMV All Sovereign Bond Index gained 10.2%, the S&P/BMV Quasi Sovereign Bond Index was up 11%, and the S&P/BMV Corporate Bond Index posted 11.3%.
Eurobonds and United Mexican States (UMS) bonds ended the year in negative territory. Despite large gains in Q4, the S&P/BMV Sovereign International UMS Bond Index fell 3.9% in 2023, while the S&P/BMV Corporate Eurobonos Bond Index was down 5.6%. Yields on Eurobond corporates dropped 89 bps, from 6.67% in September 2023 to 5.81% at the end of Q4 2023. The yield for UMS bonds dropped 95 bps, from 6.44% at the end of Q3 2023 to 5.49% at the end of Q4 2023. Comparing the S&P/BMV Sovereign International UMS Bond Index with the iBoxx $ Eurodollar Sovereigns Index—a measure of the broader Eurodollar sovereign market—the yields are close. The iBoxx $ Eurodollar Sovereigns Index had a yield decrease of 86 bps, dropping from a yield of 6.17% in Q3 2023 to 5.31% in Q4 2023. Comparing the S&P/BMV Corporate Eurobonos
Bond Index with the broader market indicator—iBoxx $ Eurodollar Corporates—a similar view is apparent. The iBoxx $ Eurodollar Corporates had a yield decrease of 96 bps, from 6.19% at the end of Q3 2023 to 5.23% in Q4 2023.
The Eurobonds market is one of the most liquid fixed income markets in the world. It provides foreign capital to issuers and diversification to investors, usually at a fixed rate. According to the iBoxx $ Eurodollar Overall Index, the nominal value of all 8,247 bonds included in the index as of December 2023 stood at USD 9.13 trillion, with a market value of USD 8.34 trillion. A drop in yields signifies that the bonds are more expensive to buy and that investors expect to earn less on the securities. A drop in yields can also signal a possible recession.
