MBono Liquidity Tracker: Liquidity recovered at the end of 2022 and it might maintain this trend
After trending downwards since the beginning of 2021, liquidity – measured as trading volume – in 4Q22 increased to levels similar to those observed in 2021. In terms of participation, local banks’ share increased during 2022 and foreign activity decreased, while the share of the rest of participants remained quite similar to that observed in previous years. Local banks’ total trading volume and average ticket per trade were higher than in previous years. Their transactions took place all along the curve, with a focus on the short end. In terms of local pension funds, their liquidity metrics remained at lows compared to historical levels, but in December their traded volume and turnover increased because the government issued a new Mbono that matures in 2033, which is appealing for pension funds considering it is a long-term bond. Finally, foreigners’ trading volume and turnover metrics remained at record lows. After a strong performance in 2020-21, activity was sluggish in 2022 in tandem with rather stagnant foreign flows. Nevertheless, activity and foreign inflows recovered during 4Q22. As we are closer to the end of Banxico’s current tightening cycle, liquidity and flows could sustain their recovery.
Udibono Liquidity Tracker: Liquidity increased in 2022, but activity could dwindle as inflation starts to moderate
Liquidity in 2022 – measured in terms of trading volume – remained at high levels compared to previous years, in tandem with the outperformance of Udibonos vs. other asset classes. However, traded volume decreased during 4Q22 as inflation is started to moderate. In 2022, local banks and local mutual funds were the most active players in the market. Foreign investors slightly increased their share of total trading volume in Udibonos in 2022, while local mutual funds and pension funds were less active. Interbank Udibono trading volume and ticket per trade recently decreased, but liquidity metrics have maintained a long-term upward trend. On the other hand, local pension funds’ liquidity metrics improved during 2022, and foreign investors remained as a minor player in the market, but their liquidity metrics improved during 2022. Their activity in the market decreased in 4Q22, though, as inflation is starting to ease.
TIIE Liquidity Tracker: Liquidity in TIIEs increased in 2022, but the trend can change because of monetary policy
Liquidity – measured in terms of trading volume – increased in 2022. Nonetheless, traded volume decreased in 4Q22 as market participants were trading monetary policy expectations and now have moved to price in the imminent end of the tightening cycle. Activity in TIIEs outperformed that in sovereign assets such as MBonos and UDIs. Foreign investors were relatively more active in TIIEs in 2022, but their activity decreased in 4Q22. On the other hand, liquidity by maturity increased – especially in 1M-1Y section – as foreign investors traded monetary policy expectations in this section of the curve.