In the first seven months of 2021, the sovereign debt market saw about 202,000 million pesos ($ 10.15 billion) come out.
Mexico is on track to record the second year of record foreign capital outflows fueled by increased risk aversion, which has already caused a flight of funds that represents 80% of the historic figure for 2020 caused by the pandemic.
In the first seven months of 2021, the sovereign debt market saw about 202,000 million pesos (10,150 million dollars) come out, an amount that is approaching 257,000 million pesos in 2020, according to figures from the Bank of Mexico (Banxico).
In July alone, the exodus of resources accelerated and reached 67.5 billion pesos, and although the outlook looks uncertain, some experts believe that this year will not be as adverse as 2020 as long as the country maintains an investment-grade credit rating.
But persistent high local inflation, the third wave of Covid-19, and uncertainty over government decisions have dampened interest in Mexican debt, analysts said, while capital flight to Chinese bonds has taken place after their inclusion in indexes of reference.
“(Inflation) lowers the real rate of government bonds and makes them less attractive,” Jonathan Fortun, an economist at the International Finance Institute, told Reuters, like other analysts anticipated at the beginning of the year that the country would see capital inflows. for an accelerated reactivation and attractive returns. But the scene has changed.
Inflation doubled the official 3% target in April and has yielded little since then, lowering the real rate on Mexican bonds and forcing the central bank to raise its key rate twice in a row to 4.5%.
Additionally, the recovery of the Mexican economy, which last year collapsed by 8.5% hit by the pandemic, has been threatened by the third wave of Covid-19 infections.
“(The rebound) has significantly increased risk aversion in our country,” said Janneth Quiroz, Monex’s deputy director of analysis.
The greater caution of the market over Mexico has forced a rise in the premium that the sovereign debt must pay. The yield on the benchmark 10-year bond stood at 6.97% on Friday, up from 5.30% at the end of 2020.
However, the yields of Mexican papers are lower than those offered by the debt of Brazil, an economy that is frequently compared to Mexico, and whose central bank began to raise its key rate since March, while the Mexican one did. until June.
Analysts also agreed that some controversial government decisions, which have hit the interests of private companies, mainly in the energy sector, have affected the perception of risk on the Mexican economy.
“The uncertainty that has been generated about respect for the rule of law has been a constant that is criticized in the private sector,” Ramsé Gutiérrez, co-director of investments at asset manager Franklin Templeton, told Reuters.
The expert, who said that he expects this year’s capital outflow to not be as large as the previous one, added that Mexican debt currently operates with higher yields than it should have with the current sovereign rating, which means that some investors have discounted new sales.
Gutiérrez said that another factor that has put pressure on capital flows to Mexico is the inclusion of China’s bonds in emerging market debt indices, driving foreign holdings in that country to record levels.
Index provider FTSE Russell approved in March that the Asian giant’s sovereign bonds be included in its flagship debt index at the end of 2021.
Meanwhile, the Mexican peso, seen as a local risk thermometer, has been more stable in the face of foreign exchange entering the country through other channels, such as record remittances and a recovery in manufacturing exports. So far this year it has gained 0.14%.