Europe versus Mexico

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 currencies, we have investigate whether the Mexican 5% yield is worth the risk and sustainable.

If the currencies do not change in value, Mexico will still provide a better yield to the investor when they bring the money home.

If the Mexican peso decline versus the US dollar is 5% greater than the Euro decline against the dollar, Euro area bonds are probably a better investment.

If the Mexican peso declines less against the US dollar than the Euro, Mexican bonds look best.

So, we have to look at the currencies.

Since January 20, the day President Trump hinted at tariffs, the Euro has gone up in value 2% versus the US dollar, and the Mexican peso is basically unchanged. Neither currency seems to have been shaken by the tariff threat yet.

If this holds, and the peso and Euro hold their present values against the the US dollar, the decision of investing in Mexico versus Europe leans to Mexico.

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