Mexican Shorter-Term Peso Bonds Decline After Rate Decision

Shorter-term Mexican peso bonds slumped, pushing yields to a two-week high, after policy makers left the country’s benchmark interest rate unchanged and said the outlook for the economy has improved.

The yield on fixed-rate peso bonds due in December 2013 rose one basis point, or 0.01 percentage point, to 4.81 percent at 3 p.m. in Mexico City, according to data compiled by Bloomberg. The yield at close was the highest since March 5. The price fell 0.03 centavo to 105.34 centavos per peso.

The peso fell 0.1 percent to 12.6692 per U.S. dollar, from 12.6575 yesterday. The currency dropped 0.2 percent this week, paring its gain this year to 10 percent.

Banco de Mexico policy makers left the country’s key rate unchanged at 4.5 percent today and said the “balance of risks for economic growth has improved” as the outlook for the U.S., which buys 80 percent of Mexican exports, has gotten better. The bank has left the rate unchanged since July 2009.

“The market readily accepts that the bias to the downside where you could see a rate-cutting exercise is probably no longer there,” Enrique Alvarez, head of Latin America fixed- income research at IdeaGlobal, said by phone from New York. “The next shift is probably in the other direction.”

Mexican industrial production rose 4.2 percent in January from a year earlier, higher than all 16 analyst estimates compiled by Bloomberg, the national statistics agency said earlier this week. Retail sales in the U.S. increased in February by the most in five months, according to the Commerce Department.

“Not only is the export side very dynamic, but there’s also a domestic component there that could be a little stronger than expected,” Alvarez said.

Longer-Term Bonds

Mexico’s longer-term peso bonds posted the biggest slump in five weeks as a strengthening U.S. economy spurred a sell-off in Treasuries, the benchmark for borrowing costs in the Latin American country.

The yield on peso-denominated debt due in 2024 rose one basis point, or 0.01 percentage point, to 6.53 percent, according to data compiled by Bloomberg. Today’s move pushed the weekly advance to 15 basis points, the most since the period ended Feb. 10. The price on the securities, known as Mbonos, fell 0.10 centavo to 129.95 centavos per peso today.

The bonds trade “as a quasi-fixed premium” over U.S. Treasury spreads because of the high-correlation between the countries’ economies, according to Siobhan Morden, head of Latin America strategy at Jefferies & Co. The yield on 10-year U.S. notes traded at the highest since October after the Federal Reserve this week raised its assessment of the economy and said strains in global financial markets have eased.

“For its obvious economic integration with the U.S., the two markets trade very similarly,” Morden said by phone from New York.

The 10-year yield on the U.S. securities rose 27 basis points this week to 2.3 percent, according to Bloomberg Bond Trader prices.

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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