Foreign investors registered outflows of USD3.64bn from Mexican sovereign bonds in October. Breaking down the outflows by market, the majority went out from MBonos (USD 2.71bn), followed by Cetes (USD 0.90 bn) and Udibonos ( .03bn). Overall, foreign appetite for Mexican sovereign bonds has remained weak.
In the first ten months of 2024, total foreign investment amounted to a net outflow of USD 0.96 billion (inflows of 1.69bn and USD 0.63bn to Cetes and Udibonos, respectively, and ouflows of USD -0.96 bn from MBonos and USD -1.69bn from Bondes). Offshore investors’ share in all government securities has remained relatively stable at around 34% in 2024, but in a trout for nearly a decade from 38.7% in 2015. Their participation in MBonos has also been declining over the past few years, currently standing at 29.4%, compared to 41.0% three years ago. Meanwhile, foreign participation in the Cetes and Udibono markets has shown a slight upward trend in recent years, and currently stands at around 11.1% and 4.4%, respectively.
Among local participants, banks, pension funds and other local investors expanded their holdings in government securities during October, while mutual funds recorded outflows. Other local investors recorded the largest net inflows, which amounted to USD 4.56bn mainly driven by investment in Udibonos and Cetes. Pension funds saw net inflows of USD 3.21bn, allocated primarily to MBonos and Udibonos. Banks increased their holdings by USD 2.93bn mainly through inflows to MBonos. Mutual funds, in contrast, registered outflows of USD -0.8bn as redemptions in Cetes and Bondes outweighed inflows to MBonos and Udibonos. Overall, local investor participation continues to support the government’s financing needs.
Meanwhile, Mexican equities have experienced total outflows of USD 4.2bn since January, a trend that has intensified since May (the month before the local elections). In October, flows were practically muted, with only USD 7.4mn in outflows from Mexican equities. Investors also made major redemptions from emerging markets, with equity outflows totaling USD -25.5 billion, 30% of which were from Chinese stocks, according to IIF data.
We expect Banco de México to maintain the current pace of the easing cycle in December and in 2025, which will support our call of a gradual steepening of the yield curve, alongside a more pressured risk premium. While potential gains in nominal and real curves might bolster demand for sovereign fixed-income assets into 2025, risk-off events could limit appetite for Mexican bonds in the near term. Additionally, increased commercial tensions and prospects of a tariffs war could dampen interest in emerging equities.