The Mexican Federal Treasury Certificates, known by their acronym CETES, which stands for Certificados de la Tesoreria de la Federación, are investment instruments offered by the Federal Government through the Ministry of Finance and Public Credit (Spanish: Secretaría de Hacienda y Crédito Público, abbreviated SHCP) and the Bank of Mexico (Spanish: Banco de México, abbreviated Banxico, Mexico’s central bank).
- Have a face value of $10.00
- They do not accrue interest, and are referred to as “zero-coupon bonds”. Nevertheless, the interest rate is implicit in the relationship between the purchase price, the face value, and the yield received on the date of maturity
- They pay face value on the maturity date
- These are the most liquid securities on the market, and maintain their value due to the Government having mechanisms for guaranteeing their payment
They may be issued provided they mature on a Thursday or the day substituting same should that Thursday be a holiday. These securities have been issued for 7-day minimum and 728-day maximum terms.
Currently, they are issued in 28- and 91-day terms, or terms close to six months and one year. Longer terms yield a greater benefit.
The Bank of Mexico (Banxico) gives CETES to those who pay more for them; in other words, they are given to those charging the least for borrowing. Individuals or legal entities may go to financial intermediaries or institutions to purchase CETES or purchase them through the CETES DIRECTO program. The rules for participating can be found in Annex 6 of Circular 2019/95 issued by Banxico. This Circular regulates the operations of credit institutions.
It is possible to conduct outright buying and selling as well as repo transactions, in addition to securities lending transactions. CETES can also be used as underlying assets in derivative markets (futures and options).
Another Use for CETES
In addition to being investment instruments, CETES are used as a reference rate in the market, since there are loans existing that are based on same.
If one has CETES and their value appreciates, the holder benefits. If one does not have these certificates and their value increases, the related interest on the loans one has will likely go up.
There is also an Internet program known as CETES DIRECTO that allows for transactions with as little as 100 pesos to be conducted on the Internet.
Nonetheless, there are other issues you should be familiar with, among them, which one of the options for depositing your savings that can be found on the Mexican Market has the best safety/security-performance (yield) ratio.
Here are five interesting facts that can help you familiarize yourself more with what CETES are all about in order to consider them as your main savings instrument.
1. They are very secure. The Mexican Federal Treasury Certificates (CETES) are one of the instruments the government issues for funding, and in return it offers an interest rate collectible at the end of a set term.
That is why they are one of the most secure options on the market, because the 'co-signer' of this investment is the Mexican government, backed by sustained growth and sound public finances.
Even with this characteristic, it is important for you to become acquainted with how CETES operate and thus be able to purchase them with the term that best suits your needs. This will greatly reduce the likelihood of your incurring a loss.
"The instrument will yield you a return over time and on the maturity date you will have the amount of your investment capital back. However, and by way of example, if you invested in a 10-year bond and you need your money back before the bond matures, you would be forced to sell at a price that could be less than the price you purchased it at, depending on the economic environment conditions that arise in carrying out said decision, and in which case you could, in fact, experience a loss," explains the CETES DIRECTO website.
2. NAFIN manages the resources. When you purchase a CETE, your money goes to Nacional Financiera (National Finance), the institution responsible for administering same in accordance with the investment instructions you issue, in other words, the term you choose.
3. There are two ways to open a CETES DIRECTO account. There are two ways to open a CETES DIRECTO account. One of the most common complaints of the program has been the requirement for having an Electronic Signature (Firma Electrónica or FIEL) in order to opening an online account. However, this is not the only way to open an account. You can open your account at Bansefi, and they will provide you with a kit that contains a card which will allow you to not only authenticate network operations, but also authenticate your contract (or account) transactions.
In order to register or enroll using this method you will need an official identification, a statement that shows that you have the Standardized Bank Code of Mexico (Spanish: Clave Bancaria Estandarizada, abbreviated CLABE), and a proof of address that should not be over three months old.
If you already have a FIEL, you can register on the express contract (account) transactions section online, and start transacting immediately.
4. There is a recurring savings plan. The CETES DIRECTO program has a savings option allowing you to automatically invest a set amount each month. Just login to your account and activate this option in order to effect a monthly transfer of scheduled resources without having to generate a new purchase order. There is also an option to activate the Automatic Reinvestment in order to invest resources and yields generated without having to worry about your investment maturity date.
5. Tuesdays become a special day. Every Tuesday, the Bank of Mexico (Banxico) conducts a government securities auction where the rate as well as the price at which you can buy CETES is defined.
In order for you to have an Investment Compass of sorts, CETES DIRECTO provides information by means of a calendar specifying how often and which instruments are available for purchase, as well as providing you with a price-point table. Through the CETES DIRECTO mechanism you can buy the government securities of your choice, under the same conditions you acquire them through banks and brokerage firms at the primary auction. The only difference is that you need not worry about calculating the price for making your securities purchase.
Source: idconline.com.mx, http://www.cnnexpansion.com
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