Foreword

The Mexican government securities market has undergone significant developments in the last 15 years. Most of you will probably recall that until the end of the past century, one-year T-bills (Cetes) were the longest fixed nominal-rate instruments, and the most extended term for a government security did not exceed seven years. In contrast, today, the Federal Government enjoys a nominal and effective yield rate of up to a 30-year term, with a liquid and deep secondary market in all of its terms, and a broad participation of diverse domestic and foreign institutional investors. A mature debt market provides more financing alternatives, for both the government and the private sector, which reflects in longer terms and lower financing costs. At the same time, domestic and foreign investors also benefit from more alternatives to invest their resources according to their specific investment profile.

Undoubtedly, all these achievements are the result of a joint and coordinated effort by many agents who, facing a highly dynamic process, have endured in providing continuity to Mexico’s macroeconomic and financial stability, which represents the foundation upon which rests the Federal Government’s credibility as a debt issuer. All the above has been supported by the persistence of responsible fiscal and monetary policies and by appropriate legal, tax, and regulatory frameworks, which have contributed to the current status of the Mexican government securities market.

For Banco de México, having a liquid and deep government securities market is key to achieve its goals and duties as a central bank. On the one hand, the debt market represents one of the most immediate and significant transmission channels of monetary policy, as it is in this market where the central bank directly conducts its open market operations. On the other hand, Banco de México acts, in pursuance to the Law, as the Federal Government’s financial agent in operations involving the placement of government debt instruments in domestic markets. For this specific reason, strengthening this market has become a central bank priority. Banco de México’s role in the growth of the government securities market has not only taken place through the conduction of a responsible monetary policy (which has allowed to lower inflation to levels below four percent and therefore contributed to a much more adequate macroeconomic setting for the expansion of such markets), but also through establishing a suitable infrastructure and regulation to promote its development. In this regard, noteworthy are the different systems the central bank has implemented for the primary placement of securities, the transparency of auctions, the central bank’s role in managing the “Market Makers Program”, the regulations issued by the central bank for operating government securities, including security lending, repos and derivatives, and the mechanisms and infrastructure for their settlement (jointly with Indeval).

The main purpose of this book is to offer a document that helps students, academics, and local and foreign investors become familiar with the level of development and major characteristics of Mexico’s government securities market, by describing first the instruments currently issued by the Federal Government, the most important features of its primary and secondary markets, the most relevant regulation issued in this matter, and the securities clearing and settlement process.

Personally, as a witness to this process, I am certain this work will be mostly useful.

Javier Duclaud
(1963 –2014)