Bloomberg News

Mexico Bond Yields Fall on Rate-Cut Speculation; Peso Rises

April 11, 2012

Mexico’s peso bond yields dropped to a five-month low on mounting speculation that policy makers will cut benchmark borrowing costs this month for the first time since 2009.

The yield on Mexico’s fixed-rate peso-denominated debt due in December 2013 fell three basis points, or 0.03 percentage point, to 4.53 percent at 12:19 p.m. in Mexico City, according to data compiled by Bloomberg. It’s the lowest level since Nov. 14. The peso rose 0.1 percent to 13.1477 per dollar.

Mexico’s central bank, known as Banxico, will cut the benchmark rate by 50 basis points to a record-low 4 percent later this month, Citigroup Inc.’s Banamex unit forecast today. The yield on the 2013 fixed-rate debt has fallen 18 basis points since the day before a report showing Mexico’s annual inflation rate dropped more than analysts had forecast in March to 3.73 percent.

“The latest inflation data have been below market expectations, so the market is beginning to consider that a cut from Banxico may become a reality,” Gerardo Welsh, a bond trader at Banco Base SA said by phone from San Pedro Garza Garcia, Mexico.

The central bank board, led by Governor Agustin Carstens left the overnight rate unchanged at 4.5 percent for the 25th straight meeting last month.

“If current favorable conditions in the inflation outlook are consolidated, it may be advisable to adjust downward the benchmark interest rate,” according to the minutes of the meeting published on March 30.

Mexico’s peso, which touched an 11-week low yesterday, rose as speculation the European Central Bank may take action to reduce Spain’s borrowing costs spurred demand for higher- yielding assets.

European Central Bank Executive Board member Benoit Coeure suggested the bank could revive its bond-purchase after Spain’s additional budget cuts failed to stem concern the nation may need a bailout. Europe’s debt crisis helped make the peso the worst performer in Latin America in 2011.

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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