Mxicos high solvency credit status with Moodys deteriorated during Andrs Manuel Lpez Obradors administration.
Moodys, a prominent global credit rating agency, evaluates 142 countries.Mexico held the coveted A3 rating from February 2014 until April 2020.
Lpez Obrador inherited a country with an A3 sovereign rating, granting access to a solvent market with lower debt yields.However, as his term concludes, Mxicos rating stands at Baa2 with a stable outlook, indicating moderate payment risk.Credit ratings guide markets on the premium required from debt issuers, especially for emerging or developing countries.Since Junes election results, borrowing costs have increased for the government, state-owned enterprises, and Mexican corporations.Mxicos Credit Rating Slips From A3 to Baa2 Under Lpez Obrador.
(Photo Internet reproduction)The Economist Intelligence Unit notes that market unease following the June 2 elections has complicated the economic outlook.
The possibility of a supermajority in Congress for the ruling party raises concerns about radical reforms.Since August, Mxicos Emerging Market Bond Index Global (EMBIG) and 5-year Credit Default Swaps (CDS) have been trading as if rating agencies had already implemented an additional downgrade.Mexicos Sovereign Risk and Credit RatingThe EMBIG for Mxico, which includes dollar-denominated bonds issued by government entities, peaked at 804 points on August 2.
This index measures the spread between Mexican bond yields and United States Treasury bonds.Similarly, Mxicos 5-year CDS adjusted upward, reaching 149.210 points on June 14, a level unseen since November 2023.Moodys analyst Renzo Merino explained that market perception affects government funding costs and is more volatile than agency ratings.
External factors, such as Pemexs bonds, can influence the sovereign spread.Mxicos Baa2 rating with a stable outlook has remained unchanged since July 2022.
Merino acknowledged a pessimistic outlook, with a review scheduled for the last quarter of the year.Merino emphasized that drastic rating changes are unlikely without a material shock affecting the credit profile.
He noted that even during the pandemic, no abrupt changes were made.Losing investment grade status would require a drastic institutional deterioration.
Governance, including corruption, rule of law, and political institutions, remains the weakest factor for Mxicos sovereign rating.Current reforms may affect the countrys institutional framework.
The judicial reform is expected to erode checks and balances on executive and legislative powers, potentially impacting contract respect and regulatory stability.Despite these concerns, Mxicos economic strength remains the supporting pillar for its sovereign rating, providing a foundation for future stability and growth.