20181221-法国巴黎银行-MEXICO__A_SHARP_DROP_IN_FOREIGNERS__EXPOSURE_TO_MBONOS_12页_1010kb

Summary of Document: MEXICO: A SHARP DROP IN FOREIGNERS' EXPOSURE TO MBONOS

Core Content

This document provides an analysis of the exposure of non-residents and Mexican pension funds (Afores) to the Mexican bond market, particularly focusing on the decline in non-residents' exposure to nominal bonds (MBonos) and the impact of inflation trends on pension fund allocations. It also outlines the breakdown of holdings in Mexican public debt and the evolving role of Afores in the financial market.

Main Points

Non-Residents' Exposure to MBonos

• Overall Exposure: Non-residents' exposure to nominal bonds (MBonos) has decreased significantly since April 2018.
  • Total DV01 exposure fell by USD 16.5mn since April, a 29% drop in dollar terms or 21% in local currency.
  • In November 2018, their exposure dropped by USD 5mn DV01, and since October 2018, it had fallen by USD 9.5mn DV01.
• Tenor Shift: The decline was primarily driven by a substantial drop in exposure to medium/long-end tenors of the nominal rates curve.
• Long End Exposure: Holdings in the long end of the curve (maturities above 10 years) decreased from 50.2% in September 2018 to 48% in December 2018.
• Short End Increase: In contrast, non-residents' exposure to the short end of the curve increased and remained stable in recent weeks.
• Dominant Tenor: The Nov-42 tenor remains the largest contributor to non-residents' exposure, accounting for 15.7% of total exposure at USD6.2mn DV01.

Pension Funds (Afores) Exposure

• Market Role: Afores are the most significant players in the real rates market (UDIBonos), holding 51.6% of the total UDIbono market.
• Portfolio Shift: Afores have shifted their portfolio from nominal to real rates in response to the sharp rise in Mexican inflation.
• DV01 Exposure: Their exposure to real rates reached USD30.2mn DV01, with a 21% drop in foreign equities and a 20% decrease in domestic equities.
• Equity Holdings: Domestic equities declined by 20% q/q (USD -2.6bn) but remained positive y/y at 6% (USD0.6bn). Foreign equities increased by 2% q/q (USD0.5bn) and remained constant y/y.
• Fixed Income: Fixed income holdings in both MBonos and UDIbonos decreased by 5% and 3% respectively on a q/q basis, but their percentage of AUM remained the same as one year ago (13% and 25%).
• Duration Trends: Pension funds' average duration in nominal rate bonds has fallen to 7.1 years, while their average duration in real rate bonds is now at 7.5 years, historically maintained around 8 years.

Key Information

Public Debt Breakdown

• Total Non-Resident Holdings: Non-residents held MXN2.14trn (USD104.3bn) of Mexican public debt in December 2018, a 1% decrease from September 2018.
• Dominant Holder: Non-residents account for 30.8% of total public debt, down from 31.6% in September 2018.
• Afores' Holdings: Afores hold MXN1,553bn (USD75.5bn) of public debt, representing 22.4% of total holdings.
• Government Securities: Afores' holdings of government securities remained stable at 50% of their total portfolio.
• MBonos and UDIbonos: Afores' holdings of MBonos decreased by 5% to MXN410bn, while UDIbonos decreased by 3% to MXN807bn.

International Reserves

• Total Reserves: Mexican international reserves stood at USD173.8bn.
• Non-Resident Share: Non-residents' share of Mexican local debt was 60%, slightly lower than one year ago (62%) and relatively stable in recent years.

Conclusion

The Mexican bond market has seen a notable decline in non-residents' exposure, especially to the medium/long-end of the nominal rates curve. Meanwhile, Mexican pension funds (Afores) have been rebalancing their portfolios towards real rates, reflecting a response to inflation trends. Despite a significant PnL depreciation, Afores' overall exposure to the market has remained relatively stable, with a shift in asset allocation from equities to fixed income in recent years. The report highlights the importance of Afores in the real rate market and the evolving nature of foreign investment in Mexico's public debt.