Moody’s Reaffirms Mexico Sovereign

Moody’s has delivered a generally favorable review of Mexico’s sovereign credit, reaffirming its Baa1 rating and keeping the outlook at stable. The market reacted faintly to the news, with spreads on 10-year TIIE and 5-year CDS coming in a few basis points Wednesday, while MXP-BRL tightened more visibly, according to RBS analysts. The shop’s analyst Siobhan Morden says in a report she does not expect a continuation of asset strengthening based purely on the agency’s move, noting the credit and related assets have already rallied in recent weeks. In the near term, however, the MXP may still benefit as it catches up to the rest of the region’s currencies, she notes. “Rather than pay attention to single events, we will focus on the ability of the administration and the willingness of Mexico’s political class to make substantive progress on pending issues going forward, without conditioning ratings changes on any specific measure or deadline,” writes Mauro Leos, and senior credit officer at Moody’s. RBS analysts say they are surprised by the timing of the decision by Moody’s, given that Mexico is set to begin a critical discussion on fiscal reform in the country. With prospects of reform dim, structural fiscal constraints are likely to remain, they say, concluding that Moody’s’ view is probably based on the expectation of a cyclical recovery, rather than improvement in the fiscal and growth dynamics. In July, Fitch said it would keep its BBB+ rating for Mexico unchanged, citing strong macroeconomic policy framework, well-entrenched macroeconomic stability, and healthy external finances. Meanwhile, Morgan Stanley says that the consumer confidence in Mexico appears to have bottomed out following a sharp decline to record-low levels in May driven by the flu outbreak. It also says that economic conditions are improving, with the pace of job losses moderating, inflation declining and sectors affected by flu-related disruptions normalizing to a great extent.