Foreign investors have withdrawn funds from Mexican sovereign bonds for seven consecutive months. In October alone, net outflows totaled USD 2.40bn. Outflows were concentrated in Udibonos (USD -1.06bn), Cetes (USD -0.76bn), and Mbonos (USD -0.58bn). Given the persistent negative trend in recent months, year-to-date foreign outflows from sovereign bonds now total USD 7.22bn, which marks the largest amount in recent years, excluding the pandemic-driven outflows of 2020 and 2021. Offshore participation in sovereign bonds has declined further, reaching a 15-year low of 11.44%. As noted in previous editions, the reduction in foreign interest has been particularly pronounced in the Udibonos market, where foreign participation dropped from 4.4% at the start of 2025 to just 1.4% in October.
In contrast, USD-denominated bonds (UMS) saw notable inflows in October, as the government issued maturities in 2029, 2031, 2033, 2034, 2035, and 2038, attracting foreign capital, according to data from the balance of payments. Relative to other EMs, the divergence remains stark: IIF estimates indicate total YtD inflows of USD 261bn into EM sovereign debt; this underscores the continued lack of appetite for Mexican local currency bonds.
On the domestic side, investor behavior was mixed. Inflows from other local investors surged once again by USD 2.46bn, primarily allocated to Mbonos and Udibonos, despite outflows from Bondes. Mutual funds showed strong appetite, particularly for Cetes, with smaller allocations to Udibonos and Mbonos, resulting in a net inflow of USD 4.36bn. Meanwhile, local banks recorded net outflows of USD 3.59bn as they reduced their positions in Mbonos and Cetes, though they modestly increased holdings in Udibonos. Pension funds posted a marginal net decrease of USD 0.05bn, driven by net sales of Cetes and Bondes, partially offset by purchases of Udibonos and Mbonos.
In Mexican equities, despite a strong YtD performance— with the BMV IPC up ~28%—foreign investors had remained net sellers for most of the year. However, in October, they reversed this trend, increasing their position by USD 0.878bn. Even so, year-to-date equity outflows still total USD 6.49bn, marking the worst figure for a comparable period since records began in 2010. Meanwhile, IIF data shows YtD inflows of USD 23.8bn into broader EM equity markets, broadly in line with 2024 levels.
Although foreign appetite for MXN-denominated assets remains weak and is unlikely to rebound in the near term, Mexico's domestic investor base continues to provide reliable support for sovereign issuance, particularly as gross financing needs are expected to remain lower than in 2024. Until greater clarity emerges around 2026 monetary policy and the upcoming USMCA revision, foreign investors are likely to remain cautious.