Mexico’s USD bond curve has followed the trend of other LatAm Sovereign bond curves where in spread terms the curves have flattened. Depending on the maturity, this makes longer-dated bonds less appealing. Indeed, as an example, since its issuance in January, MEX 2036 bonds have outperformed shorter-dated bonds like MEX 2027 or 2032; the spreads are now at close to their tightest levels.
In an environment of high rates volatility, shorter-maturity bonds could offer better cover. Beyond the short-term risks, we believe that over time the flattening trend that we have seen might reverse, leading to the underperformance of longer-dated bonds. In the case of Mexico, dedicated demand from local investors for short-dated bonds is another positive factor, which helps to limit or lower price volatility and returns.
While we maintain an overall positive view on Mexico as Mexican bonds yields look attractive relative to other LatAm IG sovereign credits, we believe that from a tactical perspective, it makes more sense to be positioned in some of the shorter dated maturity bonds like 2027 to 2032 rather than in some longer maturity bonds such as the 2036s.