The Market

Both Mexico and Europe are positioned to lower interest rates due to lower inflation. Mexican bonds, CETES, yield approximately 5% more than Euro area bonds. Lower interest rates will probably lead to lower currencies, as the yield investors get by investing in a country goes down. When comparing investments in Mexico and the Euro area in this time of lower interest rates and possibly lower curren...

Due to better inflation and employment metrics, US Fed has been able to reduce their core interest rate in the last twelve months, which could be termed a success. But the market, the entity that determines new issue bond prices and trading, doesn’t seem to agree. In the last twelve months, the US Fed rate has gone down, but the US Ten-Year bond rate has gone up from 4.2% to 4.6%, and the 30 year...

When consensus was for the US Federal Reserve to cut interest rates multiple times in 2025, many advisors were telling clients to sell short-term bonds and buy longer-term maturity bonds. It hasn’t happened, and investors seem to have stayed in short-term bonds. Two things may explain this 1) Recency Bias and 2) Risk Aversion. First, US short-term interest rates may be low at about 4.3%, but comin...

There’s a lot of debate regarding the application of tariffs on US imports. Some say they will be severe, and some say gradual. We comment on severe. Severe tariffs from the US will weaken currencies versus the US dollar, and potentially stimulate inflation in the exporting country. Put simply, a lower currency versus the US dollar boosts exports, but also raises the price of imported goods. In La...

The US, UK, Europe, and other countries are fretting about inflation, and investors are concerned. Those that are concerned about inflation may want to take a look at Mexico, a standout in global markets. Mexican inflation has gone down three times in the last three months. At 4.21% as of December, inflation is close to the Bank of Mexico’s target range of 2-4%. The Bank of Mexico meets February 6...

If it was not for the threat of the incoming US tariffs, Mexico would be one of the most attractive investments in the world, both in bond and currency terms. In mid-December Mexico cut interest rates for a fourth straight month. Inflation has not picked up, so there may be more cuts to come. At the same time, the APY on CETES is over 9 percent. Right now, investors are putting more weight on the...

The Euro versus the US dollar is down 8% since September 2024, to a level of 1.02, close to parity. Some predict the Euro could reach parity by the end of January. Drivers of the route to parity: * Political uncertainty in Germany and France. * Threat of US tariffs making exports more expensive. * Severe uncertainty in bonds and the government budget in Europe’s neighbor the UK. * Low interest rat...

The US interest rate outlook for 2025 has been like a tennis match. The opponents were 2 US interest rate cuts versus 4 in 2025. In the first ten days of January, 2 cuts routed 4 cuts. Data on US jobs, employment and inflation changed the game. Employment numbers were good and inflation expectations are up. Bond yields are up, and stock market outlook may be in question. Upcoming data will be key...

Imagine you budget savings over time for a nice vacation, but before you can go you get hit with a surprise car or house repair. The money budgeted for vacation goes to the repair. No vacation. That’s kind of how it is in the US. The UK government budgeted money for spending on new programs in 2025. But this money budgeted, saved, ended up paying for unforeseen interest rate increases. To make mat...

2024 was a bad year for Brazil’s economy and currency. The Brazilian Real fell more than 20% in value against the US dollar. Currency weakness occurred along with higher interest rates. This is not a good thing. Higher Brazilian interest rates mean a higher return on investments in the Brazilian Real. But if no one wants to buy the Real and get the higher rate, the currency will go down, higher ra...

Political uncertainty in Germany and France along with a dismal economic outlook is pressuring Europe to lower interest rates. They probably will, but will they be aggressive cuts to stimulate the economy, or will they be gradual given inflation concerns? Complicating matters further are potential US tariffs. European decision makers have some tough decisions to make. The sovereign APYs are alread...

Two interest rate cuts or four in 2025, that is the question haunting US investors The number of cuts will be determined by inflation and employment data, among other things. So far, two cuts is winning, as recent data on employment shows a healthy labor market. Who will win? Two or Four? Too early to tell, stay tuned for more. Thanks for reading etherfuse! Subscribe for free to receive new posts...