Bloomberg News

Mexican Bonds Rally as Economic Optimism Rises; Peso Gains

October 12, 2011

Oct. 12 (Bloomberg) -- Mexico’s peso bonds posted their longest rally in nine weeks as optimism Europe will contain its sovereign debt crisis fueled demand for higher-yielding assets.

The yield on the country’s benchmark peso-denominated bond due in 2024 fell five basis points, or 0.05 percentage point, to 6.54 percent at the close of trading in Mexico City, according to data compiled by Bloomberg. The price of the security rose 0.55 centavo to 130.44 centavos per peso. The yield has dropped 46 basis points over six straight days, the longest streak since the period ended Aug. 4, when yields dropped nine days in a row.

European Economic and Monetary Affairs Commissioner Olli Rehn said there is a fairly good chance of averting a European “calamity.” In a pre-recorded speech to a Dublin conference, he said consensus on resolving Europe’s debt crisis is in the making. Slovak parties reached an agreement to approve Europe’s enhanced bailout fund, paving the way for a second vote this week that will complete its ratification process across the 17 euro countries.

“Things are improving a little bit, and therefore risk premium is decreasing,” said Benito Berber, a strategist at Nomura Securities Inc. “Those bonds particularly in the long- end of Mexico, and specifically this bond, should be rallying.”

The peso gained 0.8 percent to 13.2870 per U.S. dollar, from 13.3988 yesterday. The currency’s 2 percent rise over the past week has pared its loss for the year to 7.1 percent.

“In the last week or so we’ve seen a clear trend toward appreciation,” Berber said. “It’s a function of this better news out of Europe. Also, the economic data from the U.S. is telling us that the economy wasn’t as bad as we thought.”

Employers in the U.S., the destination for about 80 percent of Mexico’s exports, added more jobs than forecast in September, Labor Department data showed Oct. 7.

Traders triggered $450 million in dollar options today, the central bank said on its website. The bank has been buying as much as $600 million through the options every month since March 2010 to bolster foreign reserves. The options allow the central bank to accumulate dollars, insuring against outflows of capital and limiting the peso’s appreciation.

--Editors: Marie-France Han, Glenn J. Kalinoski

To contact the reporter on this story: Benjamin Bain in New York at bbain2@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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