Q&A on the MexCat bonds and risk premium

Political critics have argued that AMLO does not respect institutions and is willing to operate outside the legal realm to achieve his   " just " goals (Aguilar Camin, Nexos 2018). In Mexico, AMLO has enormous power with a majority in congress and his party controls 18 state congresses out of 32. Therefore, Morena (his party) can not only change laws, but it is also well positioned to change the Constitution. However, in the case of foreign investors that own MexCat bonds (governed by New York law) AMLO has an excellent chance to prove that he sticks to the law. A bad outcome in a legal- battle between the government and bond holders will negatively impact risk premia of Mexican asset prices. However, if AMLO and his administrat ion follow market tools and act within the law, the results for asset prices and the USDMXN will be positive.