💱⚠️Mexico Credit Default Swaps Rise Marginally Despite Uncertainty: Cable FX Macro

• The rise in MXN-denominated assets risk premium translated to sharp losses in FX and equities, the peso posted its worst week since the pandemic crisis hit

• Credit default swaps tend to move in line with spikes in risk premiums, the chart below shows a rise in the Mexico 5y CDS. This can be interpreted as a bid on insurance that Mexico will not be able to pay back to its creditors

• However, the risk off trading did not hit MXN assets uniformly. The second chart shows a 2y regression of the 5y CDS vs the USD/MXN spot, the result is a high sensitivity with a 93% correlation

• Peso trading below 18.50 to the dollar is not justified by the 109.0 reading in the 5y CDS. Meaning, the FX spot dramatic fall could be an overexaggeration which is a normal characteristic of markets