Bloomberg News

Mexico Peso Bonds Fall as Speculation Fed Will Add Stimulus Ebbs

August 29, 2012

Mexico’s peso bonds dropped for the first time in six days, following Treasuries lower, on speculation Federal Reserve Chairman Ben S. Bernanke will refrain this week from signaling additional stimulus.

Yields on peso bonds due in 2024 increased three basis points, or 0.03 percentage point, to 5.50 percent at 4 p.m. in Mexico City, according to data compiled by Bloomberg. The price fell 0.39 centavo to 140.15 centavos per peso. The currency slid 0.9 percent to 13.3088 per dollar, the biggest decline against the greenback among its 16 most-traded counterparts tracked by Bloomberg. The peso earlier touched 13.3216, the weakest intraday level since Aug. 3.

Mexico’s bonds followed Treasuries higher earlier this week on speculation the U.S. central bank was considering a third round of asset purchases known as quantitative easing, or QE, to stimulate growth. Bernanke speaks at an annual symposium in Jackson Hole, Wyoming, on Aug. 31.

“Once expectations have been tempered, the yields go higher in the U.S.,” Kenneth Lam, a Latin America currency and rates strategist at Citigroup Inc., said by phone from New York. “So the Mbonos are just following.”

U.S. gross domestic product climbed at a 1.7 percent annual rate from April through June, up from an initial estimate of 1.5 percent, revised Commerce Department figures showed today. Mexico sends 80 percent of its exports to its northern neighbor.

Bond Correlation

The 30-day correlation coefficient between 10-year Mexican government bonds and similar-maturity Treasuries rose today to 0.62, the highest closing level in more than a year. A reading of 1 means the two securities move in lockstep while -1 indicates they move in opposite directions.

Bernanke may use the Aug. 31 speech to reaffirm the central bank’s assessment of the U.S. economic expansion. Many policy makers indicated additional stimulus will probably be needed “fairly soon” unless the economy shows signs of a durable pickup, minutes of the Fed’s July 31-Aug. 1 meeting released last week said.

Better-than-expected U.S. economic data may also have fueled the peso’s depreciation today, according to Mario Copca, a Mexico City-based strategist at Metanalisis SA.

To contact the reporter on this story: Ben Bain in Mexico City at bbain2@bloomberg.net

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


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