Mexico's government asserts that market perception of its credit risk and that of Petróleos Mexicanos (Pemex) has significantly decreased. The Secretariat of Finance and Public Credit (SHCP) reported a drop in the sovereign 5-year Credit Default Swap (CDS) to 80 basis points from 120, placing it below the 2012-2024 average. Pemex's 5-year CDS saw an even more pronounced improvement, falling from approximately 460 to 222 basis points. This perceived reduction in risk, according to SHCP, has led to lower financing costs and better market access for Pemex, and contributed to Fitch upgrading Pemex's credit rating by three notches and Moody's by two in the second half of 2025—the first improvements for the company since 2013.
However, market sentiment tells a different story. Bond traders are pricing Mexican government debt as if it were junk, largely due to the estimated $130 billion in government support funneled into Pemex. Moody's officially downgraded Mexico to Baa3, the lowest investment-grade rung, in May 2025. Fitch also maintains Mexico at BBB- with a one-notch penalty directly linked to Pemex's estimated $99 billion in financial obligations. Both agencies have Mexico just one downgrade away from speculative grade, which would trigger forced selling by many institutional investors. The 2026 budget allocates around $13 billion-$14 billion to meet Pemex's obligations, and President Claudia Sheinbaum's administration has settled 95% of the company's prior supplier debts.
The discrepancy between Mexico's official investment-grade rating and how its bonds trade is significant. Credit default swap spreads and bond yields have widened to levels consistent with BB-rated issuers, indicating the market is already treating Mexican debt as speculative. While the 5-year CDS for Mexico aligns with its BBB- rating, the 10-year CDS reflects a BB+ rating, suggesting market concern about longer-term financial stability. For Pemex, despite its BB+ rating (already speculative grade), its 10-year CDS levels correspond to B+ or B rated issuers, indicating the market perceives its risk to be several notches higher than its official rating. This suggests a transfer of risk from Pemex to the sovereign, with the government essentially absorbing Pemex's financial burdens, leading to increased pressure on public finances.
The substantial government backing, totaling over $130 billion across administrations, has prevented an immediate crisis for Pemex and helped reduce yields on its debt, contributing to its improved credit ratings. However, analysts like Arturo Porzecanski describe a "parasitic" relationship where Pemex's rescue comes at the cost of increased pressure on federal government finances and higher yields for sovereign debt. This has led to Mexico paying higher interest rates than some lower-rated neighbors like Guatemala and Panama. While not signaling an imminent financial crisis, the situation points to a slow but persistent deterioration of Mexico's relative financial standing, a concern echoed by firms like GMO.
