México’s high solvency credit status with Moody’s deteriorated during Andrés Manuel López Obrador’s administration. Moody’s, a prominent global credit rating agency, evaluates 142 countries.
Mexico held the coveted “A3” rating from February 2014 until April 2020. López Obrador inherited a country with an “A3” sovereign rating, granting access to a solvent market with lower debt yields.
However, as his term concludes, México’s 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 June’s election results, borrowing costs have increased for the government, state-owned enterprises, and Mexican corporations.
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, México’s 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.
Mexico’s Sovereign Risk and Credit Rating
The EMBIG for México, 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 U.S. Treasury bonds.
Similarly, México‘s 5-year CDS adjusted upward, reaching 149.210 points on June 14, a level unseen since November 2023.
Moody’s analyst Renzo Merino explained that market perception affects government funding costs and is more volatile than agency ratings. External factors, such as Pemex’s bonds, can influence the sovereign spread.
México’s “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 México’s sovereign rating.
Current reforms may affect the country’s 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, México’s economic strength remains the “supporting pillar” for its sovereign rating, providing a foundation for future stability and growth.
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