Mexico Peso Heads to Weekly Drop as Oil Law Disappoints Traders

Mexico’s peso headed for the biggest weekly drop since June, costing the currency its status as the world’s top performer this year, as the government’s plan to break the oil monopoly disappointed some investors.

The currency depreciated 1.6 percent this week to 12.8250 per U.S. dollar at 9:42 a.m. in Mexico City, slipping less than 0.1 percent today, poised for the biggest one-week decline since the period ending June 21. This week’s decline left the peso up 0.2 percent this year, trailing the Danish krone and euro among 16 major currencies tracked the Bloomberg.

Mexico peso-denominated bonds, which fell yesterday as improving U.S. jobs data fueled speculation the Federal Reserve will pare back its bond buying program this year, extending declines today amid concern President Enrique Pena Nieto’s plan to open up the energy industry contains fewer incentives for private oil companies to invest than investors had anticipated.

“It was far less than the market was expecting,” Pedro Tuesta, a Latin America economist at 4cast Ltd., said in a telephone interview from Washington. “It is an improvement from the previous situation, but it could have been better. There are too many restrictions.”

Instead of offering ownership concessions, Pena Nieto opted for profit-sharing contracts, under which the oil would remain state property and drillers receive a cost reimbursement and pre-agreed share of the net income.

Yields on government peso bonds due in 2024 rose one basis point, or 0.01 percentage point, to 6.13 percent, according to data compiled by Bloomberg. The yields have jumped 36 basis points this week, the most since the period ended June 21.

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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