Coremont is leveraging its quantitative and operational expertise to guide their clients through the migration to the new Bank of Mexico Overnight TIIE Funding Rate (F-TIIE). For example:

  • Key analytic tools, including curve construction and pricing models, have been enhanced to include the new F-TIIE index and trades that reference it. Furthermore, additional bespoke analytics have been added for pricing pre-IWED trades, that are contingent upon a synthetic 28D TIIE rate.
  • The liquidity of both new F-TIIE swaps and existing 28D TIIE swaps is being monitored to ensure robust and stable model performance. Our expectation is that the liquidity of F-TIIE swaps will materially improve starting the week commencing November 25, 2024.  In addition to Coremont supporting new trades on F-TIIE, any existing client positions will be converted systematically, enabling a robust and seamless experience.

Key Dates

  • November 22, 2024: Primary Conversion Date (CME)
  • November 23, 2024: Primary Conversion Date (LCH)
  • January 1, 2025: New swap contracts will be based on F-TIIE, but existing swaps on TIIE will remain valid during the index waiver period
  • December 3, 2025: Index Waiver Expiration Date (IWED), after which F-TIIE will fully replace the original 28D TIIE

Conversion Methodology

The treatment and conversion of existing positions depends on when the last fixing date in the trade falls relative to the Index Waiver Expiration Date (IWED) date.

  • For MXN TIIE positions whose last fixing is before IWED, known as pre-IWED trades, fixings will be calculated off a synthetic 28D TIIE rate calculated in accordance with the Banco de México formula. Specifically, the synthetic rate compounds the previous day’s F-TIIE fixing and then applies a 24 basis point spread.
  • For MXN TIIE positions with fixings including and after IWED, known as post-IWED trades, LCH and CME plan to convert the position into a package of two instruments: 
  • A 28D TIIE replacement swap whose last fixing date is before IWED. Fixings will be calculated using the Banco de México formula.
  • A forward-starting F-TIIE OIS swap, effective from the next period start date immediately following IWED, until the maturity of the original trade. Fixings will be calculated using F-TIIE 

Note that a cash compensation mechanism will be automatically implemented to account for any difference in net present value (NPV) between the old and new swaps