Where Mexico’s sovereign risk rating stands today

Delia Paredes & Genevieve Signoret

This blog post substitutes a prior post in which we accidentally published the wrong draft. Many thanks to @EMinflationista for making us aware of our error.

(Hay una versión en español de este artículo aquí.)

In our September 2023 edition of Quarterly Outlook, we identified as a pivotal risk that Mexico could lose its investment-grade status owing to what is looking like limitless support for Pemex. Today, we step back to ensure that our readers are aware of the current status of sovereign risk ratings assigned to Mexico and what would need to happen for it to lose its investment-grade status.

Sovereign risk rating is the evaluation performed by “rating agencies” regarding the likelihood that a country’s government will meet its debt obligations. The three major rating agencies are Fitch Ratings, S&P Global, and Moody’s, and each has its own scale to assess the risk of default.

On each agency’s rating scale, a threshold separates investment grade ratings from those categorized as speculative grade. The table below shows, for each, the ratings just above and just below that threshold. In that table, we use gray shading to indicate the three lowest ratings that still confer investment-grade status, and we leave unshaded, or white, the highest four ratings that are speculative grade.

It would take Fitch to downgrade Mexico’s sovereign risk rating by a single notch and either S&P or Moody’s to do so by two notches for Mexico to lose its investment grade status

Threshold between investment grade and speculative grade for different rating agencies

Investors designate a bond as “investment grade” if at least two of the three rating agencies do so. So, when we say that a country is “investment-grade,” we mean that at least two of the three agencies have rated it as such. Mexico enjoys investment-grade status because the three main rating agencies rank it as such.

The bottom line? It would suffice for Fitch to downgrade its Mexico’s sovereign risk rating by a single notch and either S&P or Moody’s to do so by two notches for Mexican sovereign debt securities to no longer be ranked as investment grade.