Mexican Six-Month Cetes Demand Rises on Bets for Steady Interest Rates

The demand for Mexican government bills maturing in six months rose to a six-week high at an auction today as foreign investors bet that central bank policy makers will keep benchmark borrowing costs steady.

The bid-to-cover ratio, a measure of investor demand, rose to 3.74, the highest since Jan. 10. The zero-coupon notes yielded 4.47 percent at auction, down from 4.48 percent on Feb. 14. The peso fell 0.8 percent to 12.7929 per dollar at the close in Mexico City, trimming gains this year to 8.9 percent, still tied with the Brazilian real for the most among 16 major currencies tracked by Bloomberg.

Foreign investors are shifting demand to longer-term Cetes from those maturing in 28 days amid bets that policy makers are likely to keep rates on hold in Mexico and the U.S. for an extended period, according to Eduardo Avila, an economist at Monex Casa de Bolsa SA. The U.S. Federal Reserve has pledged to keep the benchmark rate near zero at least through late 2014, while in Mexico economists are joining traders in abandoning predictions for Banco de Mexico to cut its 4.5 percent key rate.

“The fact that the Fed sees a quite long period in which rates aren’t going to move incentivizes the foreign investor to come to Mexico,” Avila said in an interview from Mexico City. “With the horizon a little more clear they can get into notes including those maturing in three months and six months.”

Mexico sold all 6 billion pesos of 28-day Cetes and 7 billion pesos of the 91-day securities it offered today, the central bank said on its website. Mexico also sold all 8.5 billion pesos in 182-day bills it auctioned, the bank said.

The yield on peso denominated bonds due in 2024 increased three basis points, or 0.03 percentage point, to 6.5 percent, according to data compiled by Bloomberg. The price of the securities fell 0.30 centavo to 130.36 centavos per peso.

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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