Mexico's finance ministry sent out a statement this week pointing to one bright spot: the cost to insure the country's debt against default has fallen sharply. The five-year CDS spread now stands at 80 basis points, a decline from the 120 basis points seen in October 2024 upon Claudia Sheinbaum's inauguration. The drop suggests investors see less risk of Mexico missing payments.
But bond yields tell a different story. Bank of America found that Mexico's dollar bonds pay roughly 39 basis points more than similar countries, which implies they trade about 1.5 notches below the country's credit rating. Yields on Mexico's dollar bonds have also been higher than some smaller Latin American neighbors with worse ratings, according to a Bloomberg analysis.
Part of the gap comes down to Pemex. Over the past eight years, the Mexican government has given $130 billion in support to state-owned oil company Petroleos Mexicanos SA. That assistance helped cut Pemex's debt from 9.3% of GDP in 2016 to 4% this year, but the drain on public money is hefty.
Moody's cut Mexico's rating to the lowest investment-grade tier in May, pointing to a larger fiscal deficit, weak growth, and ongoing backing for Pemex. A week earlier, S&P had cut its outlook on Mexico's rating to negative.
Mexico's finance ministry pushed back, saying the gap between CDS levels and rating agencies shows the market has a different view. Officials noted that the country's CDS spread has narrowed since March, that Pemex has returned to local bond markets, and that the company received its first ratings upgrade in 12 years.
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Central bank Governor Victoria Rodríguez Ceja echoed that, saying lower CDS levels "reflect lower perceived default risk."
"Mexico maintains investment-grade ratings from all rating agencies, and we expect this to remain the case going forward," she said.
Not everyone is convinced. Marco Oviedo, a strategist, points to the gap between Mexico's bond yields and its credit rating.
"The reality is the market is gradually pricing in a 10-year USD bond close to junk-rated sovereigns," Oviedo said. "Denying it is like covering the sun with a finger."
The gap matters because it shows where actual money sits. Credit ratings look backward. Bond prices look forward. And right now, the forward view in Mexico is murkier than the 80-basis-point number suggests.
That doesn't mean Mexico is heading for a crisis, or that the gap will stay. But it does mean that the ratings and the market aren't yet telling the same story. For anyone with Mexican bonds or a stake in the peso, that gap is worth watching.