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MEXICO: Banorte Expect Demand For Cetes To Remain Solid This Week

MEXICO
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  • For the remainder of this year Banorte estimate that Banxico will reduce its benchmark rate in November and December meetings with 25bp cuts to close the year at 10.00%. Amid the monetary easing cycle and regarding this week’s supply, Banorte expect demand for Cetes to remain solid. In particular, appetite for 3- and 6-month terms has increased the most.
  • They note that holdings of mutual funds rose rapidly during the year to 19.2% of the amount outstanding from 14.1% in 2023. With this, mutual funds are now the main holder, displacing pension funds, which have 15.8% from 15.00% last year.
  • During October, Mbonos yields rose sharply (~55bps) driven by market expectations of fewer cuts by the Fed. The longest-term Mbono (Jul’53) is trading at 3-month highs, surpassing the 10.20% support level after accumulating losses of ~50bps so far in October.
  • Despite this adjustment, it still reflects room for greater pressures when adjusting its yield by modified duration across the curve. As such, Banorte anticipate moderate demand, remaining below the 2-year average of 1.9x. Meanwhile, Banorte anticipate a modest appetite for the 10-year Udibono (Aug’34) given a less attractive relative valuation vs short-term securities.
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  • For the remainder of this year Banorte estimate that Banxico will reduce its benchmark rate in November and December meetings with 25bp cuts to close the year at 10.00%. Amid the monetary easing cycle and regarding this week’s supply, Banorte expect demand for Cetes to remain solid. In particular, appetite for 3- and 6-month terms has increased the most.
  • They note that holdings of mutual funds rose rapidly during the year to 19.2% of the amount outstanding from 14.1% in 2023. With this, mutual funds are now the main holder, displacing pension funds, which have 15.8% from 15.00% last year.
  • During October, Mbonos yields rose sharply (~55bps) driven by market expectations of fewer cuts by the Fed. The longest-term Mbono (Jul’53) is trading at 3-month highs, surpassing the 10.20% support level after accumulating losses of ~50bps so far in October.
  • Despite this adjustment, it still reflects room for greater pressures when adjusting its yield by modified duration across the curve. As such, Banorte anticipate moderate demand, remaining below the 2-year average of 1.9x. Meanwhile, Banorte anticipate a modest appetite for the 10-year Udibono (Aug’34) given a less attractive relative valuation vs short-term securities.