Types of government bonds
In Mexico, the Federal Government currently issues and places four different instruments in the local debt market. These are cetes, bonos, bondes and udibonos. In turn, the Instituto para la Protección al Ahorro Bancario (IPAB) places the so-called Bonos de Protección al Ahorro (BPAS), which, although issued by the Institute, have a credit guarantee from the Federal Government. Banco de México acts as financial agent in the placement of these securities, both those of the Federal Government and those of the IPAB. Below is a brief description of each of these securities. The following is a brief description of each one of these securities.
Regarding the control of the ownership of the securities, this is carried out through INDEVAL where an accounting record is kept of the holdings of instruments in the hands of financial institutions. Financial institutions, in turn, keep an accounting record of their clients’ holdings. This ensures control over securities holdings.
Investing in Mexican government bonds
In other words, which is better for a company in the current environment: to borrow from its relationship bank(s) or to issue debt in the bond market? Are these two instruments really mutually exclusive? Let’s look at it briefly.
A good example of how to articulate bank loan and bond is that of acquisition financings where the funding of the purchase is guaranteed by a bank loan secured by a number of financial institutions, generally called bridge to bond, with the objective of being repaid and refinanced in the longer-term bond market, once the acquisition has been completed.
This article was written by Emilio López Fernández, Head of Corporate Lending for Iberia, and Javier Urraca, Head of Fixed Income for Corporate and Business Banking clients.
In stock market operations, it is very common to find English terms that define part of the daily activity. These are some of the terms you will be interested in knowing if you want to operate in the stock market.
The debt securities market is preferred by conservative investors who like safety rather than investing in riskier assets such as stocks. While there are corporate bonds within the fixed income market, there is a broad preference for Mexican government bonds.
While buying government bonds may seem like a strategy for conservative investors only, investing in government debt is also a very good option for moderate and aggressive investors when it comes to diversifying their portfolio.
Once the investor has acquired instruments in the primary market, he can sell them to another investor, who can sell them to another investor, and then another, and so on, and so on, and so on, as many times as desired, this act is called the secondary market. In this market are stocks, mortgages, bills of exchange and credits.
The primary market seeks to obtain financing for the issuing company, and the secondary market seeks to provide liquidity to the investments made in securities and at the same time establishes a definitive price for the securities.
How to invest in government bonds
Bonds are securities that represent debt of the issuing entity. They are considered as an alternative source of financing for companies, different from bank credit or stock issuance. The issuing company will acquire the obligation to return the amount of the investment to the bondholder, once a period of time has elapsed, plus the interest it has committed to pay. Considering that it is a debt security, when the investor acquires a bond he does not assume the role of partner of the issuing entity. This is due to the fact that, unlike shares, when acquiring a bond the investor will not receive dividends and will not be able to participate in the shareholders’ meeting. Bonds are classified as fixed income securities, since the investor has advance knowledge of what his profit will be at maturity. The investor may sell the bond before maturity, however, the economic return will depend on market conditions.