Certificados de la Tesorería de la Federación (CETES)

Certificados de la Tesorería de la Federación (also known as CETES, pronounced “say-tays”) are the Mexican equivalent of U.S. Treasury Bills (T-Bills). Think of them as IOUs from the Mexican government. They are short-term, zero-coupon debt securities denominated in Mexican pesos (MXN) and are considered one of the safest investments available in Mexico. The term “zero-coupon” sounds fancy, but it just means you don't receive regular interest payments. Instead, you buy the CETE at a discount to its face value and receive the full face value when it matures. The difference between the price you paid and the face value you receive is your profit. Because they are backed by the full faith and credit of the Mexican government, the risk of default is extremely low. This makes them a fundamental building block of the Mexican financial system and a popular choice for conservative investors looking to preserve capital while earning a modest return.

The mechanics behind CETES are beautifully simple, which is a big part of their appeal. They are issued through weekly auctions run by Mexico's central bank, the Banco de México.

Imagine the Mexican government needs to borrow money. It offers a CETE with a face value of 10 MXN that matures in 28 days. You don't pay the full 10 pesos for it. Instead, you might buy it at auction for, say, 9.95 MXN. You then hold it for 28 days, and at the end of the term, the government pays you the full 10 MXN. Your profit is the 0.05 MXN difference. It might not sound like much, but when you annualize that return and invest larger sums, it becomes a secure way to make your money work for you. The price is determined by the prevailing interest rates in the auction; a higher interest rate means a bigger discount and a better return for you.

CETES are short-term instruments, designed for investors who don't want to lock up their money for long periods. The most common maturities available are:

• 28 days (about one month)
• 91 days (about three months)
• 182 days (about six months)
• 364 days (about one year)

While CETES might seem like a plain-vanilla investment, they play a surprisingly important role in the toolkit of a savvy value investor.

Legendary investors like Warren Buffett are famous for holding large amounts of cash while they wait patiently for the perfect investment opportunity—what they call a “fat pitch.” Letting that cash sit in a zero-interest account, however, means losing purchasing power to inflation. CETES (or their local equivalent) serve as an ideal parking spot for this capital. They offer a return that often beats inflation while keeping the principal safe. This aligns perfectly with Buffett's first rule of investing: “Never lose money.”

The yield on a short-term government security like a CETE is the benchmark for the risk-free rate in that country. Why does this matter? The risk-free rate is the absolute foundation for valuing almost any other asset. When a value investor tries to calculate the intrinsic value of a stock using a Discounted Cash Flow (DCF) model, they must first estimate a discount rate. This rate starts with the risk-free rate and adds a risk premium to compensate for the higher risk of investing in a business. In short, the CETE yield tells you the baseline return you should demand from any Mexican investment.

Here’s the crucial point for American and European investors. While a CETE is nearly risk-free for a Mexican investor, it is not risk-free for you. Why? Currency risk. Your investment is in Mexican pesos. If the peso weakens against your home currency (the dollar or euro), your returns could be diminished or even erased when you convert them back. For example, you could earn a 5% return in pesos, but if the peso falls 8% against the dollar during that time, you’ve actually lost 3% in dollar terms. Therefore, for a foreign investor, buying CETES is a dual bet: one on Mexican interest rates and another, more significant one, on the strength of the Mexican peso.

Accessing CETES depends on your location and residency.

• For Mexican Residents: The process is incredibly straightforward through the government's online platform, Cetesdirecto. It was designed to give ordinary people direct access to government securities without needing a traditional brokerage account.
• For Foreign Investors: Direct investment can be tricky. The most common ways to gain exposure are through international brokers that offer access to Mexican debt markets or, more simply, through Exchange-Traded Funds (ETFs) that specialize in emerging market bonds or specifically Mexican government debt.