The Cetes are the Certificates of the Federal Treasury of Mexico, debt securities issued by the Federal Government of Mexico since 1978.
Cetes work like any debt instrument. The issuer, which in this case is the Mexican government, receives the money from the investor. In return, he promises to return it plus an additional amount within an agreed period.
From a more technical point of view, what the investor receives at the end of the period of the instrument is its nominal value.
Characteristics of the Cetes
Among the characteristics of the Cetes are:
- They offer a predetermined return to the investor.
- The investor's profit is the difference between what he pays for the security (purchase price) and the price at which he sells it at maturity to the same issuer (sale price).
- They are placed through a broker at a discount rate, on which the return for the investor depends.
- Formally, the issuer is the Ministry of Finance and Public Credit (SHCP) of the Federal Government, with Banco de México as its representative.
- The primary placement of the Cetes is through auctions. Bidders indicate the amount of securities they wish to purchase and the discount rate they are willing to pay.
- In the secondary market, Cetes can be traded like any other security.
- At the time of writing this article, the minimum term of the Cetes is 7 days, while the maximum is 728 days.
Calculation of the price of Cetes
Cetes are sold under par. Therefore, its price is calculated with the following formula:
So, if the nominal value of the security is 10 Mexican pesos and it was issued for 72 days at a 12% discount, its price will be:Secretary of Finance and Public Credit (SHCP)