Bloomberg News

Mexican Peso Falls as European Debt Concern Reduces Risk Demand

December 28, 2011

Dec. 27 (Bloomberg) -- Mexico’s peso fell to the lowest in four weeks as concern about Europe’s sovereign debt crisis reduced demand for higher-yielding assets from the Latin American nation.

The peso dropped 1 percent to 14.0101 per U.S. dollar at close in Mexico City, from 13.8632 yesterday. The currency earlier touched 14.0424, the weakest level since Nov. 28, according to data compiled by Bloomberg.

Concern about Europe’s debt crisis has fueled a 12 percent tumble in the peso this year, worst performance among Latin America’s major currencies. Italy will sell 9 billion euros ($11.8 billion) of 179-day bills and as much as 2.5 billion euros of zero-coupon 2013 bonds tomorrow. The peso extended losses as institutional investors bought dollars, overwhelming supply amid light trading before the year-end holidays, according to Ramon Cordova, a currency trader at Base Internacional Casa de Bolsa in Monterrey, Mexico.

The peso’s decline “has a bit to do with waiting to see what happens with the auctions in Italy,” Alejandro Padilla, a strategist at Grupo Financiero Banorte-Ixe, said by phone from Mexico City. “The market isn’t that convinced that all the fiscal adjustment measures that were approved last week are going to help investors maintain exposure to Europe.”

Italian Prime Minister Mario Monti secured final passage for austerity and growth measures last week.

The yield on Mexico’s benchmark peso-denominated bond due in 2024 rose 13 basis points, or 0.13 percentage point, to 6.62 percent, according to data compiled by Bloomberg. The price of the security fell 1.35 centavo to 129.30 centavos per peso.

Mexico sold all of the 6.5 billion pesos of 28-day Cetes it offered at auction today, the central bank said on its website. The government also sold all of the 7.5 billion pesos of 91-day bills and all of the 8 billion pesos of 182-day Cetes that were auctioned, the bank said.

--With assistance from Rob Verdonck in London. Editors: Richard Richtmyer, Jonathan Roeder

To contact the reporter on this story: Ben 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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