Mexico Benchmark Bonds Fall With Peso as Fed Outlook Saps Demand

Yields on Mexico’s peso bonds rose for a fourth day on speculation that the U.S. Federal Reserve may move sooner than some investors expected to curtail monetary stimulus that has boosted demand for emerging-market assets.

Yields on peso bonds due in 2024 rose eight basis points, or 0.08 percentage point, to 6.02 percent at 9:20 a.m. in Mexico City, according to data compiled by Bloomberg. The move left the yield down 0.06 percentage point for the month. The currency fell 0.4 percent to 12.9862 per U.S. dollar, paring its gain this month to 0.9 percent.

While the Fed pledged yesterday to maintain the pace of its $85 billion a month of securities purchases, policy makers said they saw signs of “underlying strength” in economic activity. The selloff began last week when Banco de Mexico signaled it wouldn’t cut rates further.

The Fed was “less dovish than expected,” said Alejandro Urbina, who helps oversee $800 million including Mexico government peso bonds at Silva Capital Management in Chicago, said in a e-mailed response to questions.

Mexico policy makers said Oct. 25 that more cuts weren’t advisable as they lowered the target lending rate by 0.25 percentage point to 3.5 percent.

To contact the reporter on this story: Ben Bain in Mexico City at bbain2@bloomberg.net

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