Mexican Currency Volatility Rises for Ninth Day on Fed Concern

Mexican peso volatility climbed for a ninth day on concern the Federal Reserve will curtail a stimulus program that has buoyed emerging-market assets.

Three-month historical volatility, a measure of the magnitude of the peso’s fluctuations during the period, rose to an eight-month high of 10.42 percent at 10:12 a.m. in Mexico City, according to data compiled by Bloomberg. The currency slumped 0.9 percent today, erasing its rally for 2013.

Demand for Mexican local-currency assets has fallen as better-than-forecast U.S. economic data fueled speculation that the Fed will scale back unprecedented asset purchases, known as quantitative easing or QE.

“If the U.S. really tapers off QE, the peso is going to be hit,” Pedro Tuesta, a Washington-based Latin America economist at 4Cast, said in a telephone interview. “So everybody says, ‘I’d better cover my back.’ And that’s why the peso is weak.”

Futures traders cut net bets on a peso advance against the dollar to 82,871 last week, the lowest since August 2012, data from the Washington-based Commodity Futures Trading Commission showed on June 7.

The yields on benchmark government peso bonds maturing in 2024 climbed five basis points, or 0.05 percentage point, to 5.45 percent, according to data compiled by Bloomberg. The price fell 0.51 centavo to 138.88 centavos per peso.

The extra yield investors demand to hold 10-year Mexican peso bonds instead of U.S. Treasuries rose today toward a four-month high reached on May 31.

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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