Decline in 28-Day Cetes Yields Following Banxico's Rate Cut

The 28-day Cetes recorded their lowest yield since December 2022, shortly after the Bank of Mexico (Banxico) decided to lower the interest rate. This week, during the government securities auction, the yields on Cetes dropped to levels close to 10.25%, the same percentage left by the central bank.

Despite the rise in overall inflation, Banxico's cut was justified by a decrease in underlying inflation, which is considered a better indicator when excluding volatile products. "Underlying inflation has shown 21 consecutive readings on the decline, and in October, service inflation fell below 5% for the first time in two years," notes a report by Intercam. The Governing Board left the door open to continue considering further rate cuts, and it is anticipated that by the end of 2024, the interest rate will reach 10%, suggesting that the era of double-digit yields is coming to an end. "The Federal Reserve will be very cautious with its cuts, which will also limit Banxico's room to maneuver. In this context, we believe that while cuts in the benchmark rate will continue, they will be gradual, and we do not rule out pauses at certain meetings," emphasized Intercam.

How Attractive are Cetes Yields? Currently, the 28-day Cetes offer yields of 10.5%, while for three months, the yield is 10.10%. At six months, the rate is 10.21%, and at two years, it is 10.39%. Despite fluctuations, Cetes remain a viable investment option, as they are government debt and, therefore, considered safe. In October, inflation registered at 4.7%, meaning that when subtracting inflation from the yield on the 28-day Cetes, a real rate of 5.35% is achieved, one of the highest in the market.

The current environment demonstrates that although yields on Cetes are declining, investing in these instruments remains a solid choice for those seeking security and attractive real returns. It is always advisable for investors to keep an eye on inflation and interest rates, as these factors impact the real returns on their investments.