Mexico Bonds Set for Worst Year Since ‘08 as Peso Little Changed

Mexico’s peso bonds headed for the biggest yearly decline since 2008 on concern that the Federal Reserve’s decision to cut U.S. stimulus will reduce liquidity in global capital markets and squelch demand for the securities.

Yields on fixed-rate peso bonds maturing in 10 years rose 1.07 percentage points this year to 6.45 percent as of 9:56 a.m. in Mexico City, the most since a 1.22 percentage point increase in 2008, according to data compiled by Bloomberg. The yield fell 0.04 percentage point today. The peso was little changed at 13.0521, leaving it down 1.5 percent in 2013.

Mexico’s bonds tumbled in the second half of 2013 as investors debated when the Fed would slow the pace of monthly bond purchases before its Dec. 18 decision to cut them by $10 billion to $75 billion. Concern that the reduced stimulus will damp demand for the debt outweighed prospects for economic growth after the Latin American country enacted constitutional changes to open up the oil industry to competition.

“It was about the stimulus,” Jose Carreno, a bond trader at Banco Base SA, said in a telephone interview from San Pedro Garza Garcia, Mexico. “It was what moved the market a lot.”

In its weekly debt auction today, Mexico’s Finance Ministry plans to sell 7 billion pesos in 28-day Cetes, 10.5 billion pesos in 91-day bills, 11.5 billion pesos in notes maturing in 175 days and 10.5 billion pesos in bonds due in June 2018, according to the central bank.

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

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