Disclaimer: This technical note is not intended to substitute its original version in Spanish for any
legal purpose. It is intended solely for guidance and didactic use.
Technical Description of Mexican Federal Treasury Certificates
1.
INTRODUCTION
Mexican Federal Treasury Certificates (CETES) are the oldest debt tradable instrument
issued by the federal government. They were issued for the first time in January 1978 and
since then they have been a cornerstone in the development of the Mexican money
market. These securities are zero-coupon bonds, which means that they are traded at a
discount (below their face value), they do not accrue any interest before expiration, and
they pay face value on the maturity date.
2.
DESCRIPTION
2.1
Name
Certificados de la Tesorería de la Federación, (CETES) (Mexican Federal Treasury
Certificates )
2.2
Face Value
10 pesos (ten pesos).
2.3
Term
They can be issued for any term, as long as they mature on a Thursday or the day that
substitutes this date in the event of a holiday. These securities have been issued for
minimum and maximum 7- and 728-day terms, respectively. Currently, CETES are issued
for 28- and 91-day terms, and at maturities close to six months and one year1.
1
With the purpose of increasing the marketability of these titles, the federal government has sought to reduce the
number of outstanding issues in the market and increase their volume. With that purpose, in the last few years the
ministry of finance has auctioned the same issue of CETES at an approximate term of 6 months and 1 year in
several occasions. Therefore, in the weekly auctions 1-year CETES have been issued and placed at terms between
335 and 364 days while 6-month CETES have been placed with terms between 153 and 182 days.
1
2.4
Interest
Because these securities are zero-coupon bonds, they do not accrue interest.
Nevertheless, the interest rate is implicit in the relationship between the purchase
price, the face value, and the maturity date.
2.5
Primary Issuance
The primary issue is carried out through auctions, where participants present their bids
for the amount they want to purchase and the discount rate they are willing to pay. The
rules for these auctions can be found in Banco de México’s Circular 5/2012, which is
addressed to credit institutions, brokerage houses, mutual funds, pension funds and
Financiera Rural.
2.6
Secondary Market
In Mexico, there is a broad secondary market for these securities. Today, it is possible to
carry out outright sale and repo transactions as well as securities’ lending transactions.
CETES can also be used as underlying assets in derivative markets (futures and options).
Direct transactions for these securities can be made by quoting their price, discount rate
or rate of return. However, the current market convention is to quote them by
calculating their rate of return. The process conventionally used to calculate the price of
CETES and how to convert a discount rate into a rate of return (and vice versa) is
described in Appendix 1. Appendix 2 presents a practical example.
2
2.7
Security Identification
CETES series are designed to be fungible. This means that previously and recently issued
CETES can have the same code as long as they have the same maturity date.
Identification codes have eight characters.
The first and second identify the security (“BI”), and the remaining six indicate the
instrument’s maturity date (year, month and day). The relevant number to identify a
CETE is the maturity date. This means that two CETES issued on different dates but
maturing on the same date will have the same identification code, and therefore
cannot be distinguished from one another.
Example of series of CETES issued on August 24, 2000 for a 28-day term maturing on
September 21, 2000: BI000921.
3
APPENDIX 1
CETES VALUATION
The purpose of this appendix is to demonstrate both the process for calculating the
price of CETES and an example according to market practices.
GENERAL VALUATION METHODOLOGY FOR CETES
The price of a CETE can be calculated from either its rate of return or its discount rate. The
final price may vary slightly depending on the number of decimals used.
Using the rate of return, the instrument price can be computed with the following
formula:
P
VN
 r *t 
1 

 360 
(1)
Where:
P =
VN =
r =
t =
Price of CETE (rounded up to 7 decimal points)
Face value of the security in pesos
Annual rate of return
Term in days of the CETE
Let b be the discount rate of a CETE, then:
b
r
;
r *t
1
360
4
Solving for r:
r
b
b*t
1
360
(2)
By substituting (2) in (1) we obtain the formula to calculate the price of a CETE from its
discount rate:
 b *t 
P  VN * 1 

 360 
Equation (1) shows that the price of CETES is derived only from one element: the present
value of the principal (face value).
5
APPENDIX 2
A PRACTICAL EXAMPLE
1. On August 31, 2000, an investor buys CETES with the following
characteristics:
Face value:
Issue date:
Maturity date:
Days to maturity:
10.00 pesos
August 31, 2000
September 28, 2000
28 days
Assuming that the investor obtains the securities at an annual rate of return of 15.50%, to
calculate the price to liquidate the operation, the investor has two options: a) calculating
the present value of the principal through the rate of return, or b) calculating the price
through the discount rate provided by that return.
a) With a rate of return of 15.50%, the liquidation price of each security
would be:
P
10
10

 9.8808805
 .01550 * 28  1.01205555556
1 

360


b) The discount that is equivalent to a 15.50% return is:
6
With this discount rate (15.32%), the price at which the investor will have to liquidate
each one of the CETES acquired can be determined. According to market convention,
the rate of return and the discount rate must be rounded to four decimal points. As a
result, sometimes, the price of the CETE is different by a matter of decimals.
7