Rabobank strategists Christian Lawrence and Molly Schwartz report that the Mexican Peso (MXN) remains supported by high real yields, even after Moody’s downgraded Mexico’s sovereign rating to Baa3, which is one notch above junk status [1]. Despite this downgrade, 10-year MBono yields have decreased by 36 basis points compared to pre-downgrade levels, indicating that markets are largely unconcerned about an imminent loss of investment-grade status. S&P continues to rate Mexico three notches above junk, further reinforcing market confidence [1].
Mexico currently offers some of the highest real yields globally, exceeding 5%, second only to Brazil. This yield advantage continues to drive demand for Mexican government bonds such as MBonos and Cetes [1]. Rabobank expects Banco de México (Banxico) to maintain its policy rate at 6.50%, with the 10-year yield likely to stabilize around current levels [1].
The strategists note that correlations between MXN and other risk factors are fading as geopolitical tensions and energy prices subside. This environment has led to reduced USD/MXN volatility, making MXN carry trades more attractive and supporting a stable foreign exchange backdrop [1].
Despite signs of weakening economic growth, persistent core inflation is expected to keep Banxico on hold at 6.50% through the end of the year. The threshold for further policy easing remains high, according to Rabobank [1].
CONCLUSION
The Mexican Peso remains resilient, underpinned by high real yields and market confidence in Mexico’s investment-grade status despite Moody’s downgrade. With Banxico expected to hold rates steady and volatility subdued, the MXN’s carry appeal is likely to persist in the near term.