Fiscal Austerity Questioned Over Pemex Relief, TIIE Swap Curve Bear Steepens

Confirmed late yesterday - Mexico's government will inject between $1.3 billion and $1.6 billion into state oil company Pemex this year. Additionally, the aforementioned tax break will amount to $75 billion pesos, bringing the aid package to around $5 billion.

• Analysts immediately note that the announcement of aid raises concerns that fiscal austerity efforts might be hurt.

This week's weather-related cuts in natural gas imports from the US continues to expose the important limitations of current energy policies, and the little margin of error of policymakers when facing sudden shocks like last year's pandemic.

TIIE swap rates rose for a fourth day yesterday with the curve extending its bear-steepening trend.

• With the short end fairly well anchored following Deputy Governor Esquivel's comments on space for at least two more rate cuts, the long end has suffered.
• The 2-year/10-year swap rate spread is now about 165 basis points which is the highest since 2016.