Foreign investors registered inflows of USD2.37bn into Mexican sovereign bonds in February, driven by net purchases of Mbonos of USD 2.65bn, while they decreased their Cetes and Udibonos positions, albeit by only USD -0.25bn and USD -0.04bn, respectively. This inflow more than offsets what was seen in January, and the YtD total inflows from foreigners amount to USD0.97bn, mainly allocated to Mbonos.
Offshore investors' share in all government securities has seen a negative trend over the last decade, and in February 2025 it stood at 13.4%, after reaching 38.7% in January 2015. Their participation in MBonos also continued to decline; with this figure currently standing at 29.8%, down from 42.3% just three years ago and from 59.5% in 2015. Foreigners’ participation in Cetes was more when rates were higher (2022-2023), but over the last twelve months it has fallen to 10.1%. Meanwhile, foreign participation in the Udibonos markets has remained stable at around 4.5% over the last year.
Among local participants, mutual funds, banks and other local investors recorded inflows to government securities in February, while local pension funds reduced their holdings. Net inflows into Mutual funds amounted to USD3.86bn with USD3.2bn allocated to Bondes and a notable USD1.55bn outflow from Mbonos. Local banks registered inflows of USD3.68bn mainly driven by the appetite for Udibonos and Bondes, while other local investors' appetite was primarily allocated to Cetes (USD3.08bn). In sum, despite the outflow from pension funds, local investors increased their demand for local assets by USD8.52bn. As such, their participation, rather than foreigners, continues to support the government's financing needs.
On the other hand, the YtD outflow from Mexican equities continued in February, which has happened almost every month since last April 2024 (except in July 2024). Equities recorded total outflows of USD511.6mn in February, which follows a divesture of USD417.0mn in January. This trend is a natural result of local and global political noise and a sluggish economy. However, the weak appetite for equities has been seen in all EM markets over the last few months, according to IIF data.
Banco de México will continue shifting to a less restrictive monetary stance, hence the nominal curve could continue to outperform, and we thus see more scope for an adjustment in the 3-7Y section. Meanwhile, global trade uncertainty and jitters about economic activity may continue to affect foreigners' appetite for local assets.