Mexican Peso Bond Yields Plunge as Japanese Stimulus Lures Money

Mexico’s peso bond yields tumbled to a record low on speculation that Japan’s economic stimulus measures will add to foreign investment in Latin America’s second-biggest nation.

Yields on peso bonds due in 2024 tumbled seven basis points, or 0.07 percentage point, to 4.59 percent at 9:40 a.m. in Mexico City, set for a record low on a closing basis, according to data compiled by Bloomberg.

Japanese Finance Minister Taro Aso said yesterday that his nation’s policies went unopposed at the Group of 20 meeting in Washington, signaling further weakening of the yen as the central bank pushes ahead with stimulus measures. Mexico has been benefiting from a surge in inflows from Japanese investors seeking higher-yielding assets. Foreigners held a record 37 percent of Mexican government bonds on April 1, according to the central bank.

Declining yields are a sign of “foreign flows, among them from the Japanese,” Alejandro Padilla, a Mexico City-based strategist at Grupo Financiero Banorte SAB, said in an e-mailed response to question. “There’s strong appetite for Mexican bonds.”

Yields also reflect speculation that the central bank may use its next rate decision statement to signal the possibility of additional cuts in benchmark borrowing costs, Padilla said. Some investors betting on losses in the securities have probably been closing out those positions, a practice known as short covering, he said.

The peso climbed 0.6 percent to 12.2036 per U.S. dollar, pushing its advance to 5.3 percent this year, the most among the dollar’s 16 major counterparts tracked by Bloomberg. It rose 1.6 percent against the Japanese today, and it has soared 20 percent against the yen in 2013.

Investment in Mexico from Japanese mutual funds, known as Toshins, soared 187 percent in the seven months through March to a record 268 billion yen ($2.7 billion), according to Nomura Holdings Inc.

To contact the reporter on this story: Jonathan Levin in Mexico City at jlevin20@bloomberg.net

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

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