Mexico Bond Yields Hold at One-Week Low on Rate Bets; Peso Drops

Yields on Mexico’s benchmark 10-year bonds held at a one-week low as speculation policy makers will cut borrowing costs drove demand ahead of an auction today to sell more of the securities.

Yields on government peso bonds due in 2022 were little changed at 5.05 percent at 9:23 a.m. in Mexico City. It’s the lowest yield on a closing basis since Feb. 6. Mexico’s peso declined 0.1 percent to 12.6969 per U.S. dollar.

Mexico plans to sell as much as 8.5 billion pesos ($670 million) of the 2022 bonds at a weekly auction today. The securities have rallied as speculation mounted that inflation heading to the central bank’s 3 percent target and an outlook for slower growth will prompt the central bank, known as Banxico, to cut borrowing costs for the first time since 2009.

“Considerations for a potential Banxico cut are increasing, and this seems to be the dominant driver in the markets,” Aryam Vazquez, a New York-based economist at Wells Fargo & Co. said in an e-mailed response to questions.

Banco de Mexico reiterated Feb. 13 it may cut its target rate if inflation continues to slow toward its target after consumer prices rose 3.25 percent in the 12 months through January, the slowest pace since October 2011. The central bank said it’s more probable that growth will slow than pick up, depending on the performance of the U.S. economy.

Policy makers are scheduled to announce their next interest rate decision on March 8. They have kept borrowing costs unchanged at 4.5 percent for 32 straight meetings.

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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