Mexico CPI Bonds Fall on Slower-Than-Forecast January Inflation

Mexico’s inflation-linked bonds sank, pushing yields to a six-month high after a report showed consumer prices in Latin America’s second-biggest economy rose less than forecast last month.

Yields on inflation-linked securities due in June 2016 increased seven basis points, or 0.07 percentage point, to 0.97 percent at 9:19 a.m. in Mexico City, according to data compiled by Bloomberg. The peso declined 0.6 percent to 13.3576 per dollar after earlier dropping as much as 0.9 percent.

Demand for the securities, known as Udibonos, declined after the national statistics agency said prices climbed 0.89 percent in January from the previous month, compared with the 0.97 percent median forecast of 20 analysts in a Bloomberg survey. Annual inflation quickened to 4.48 percent from 3.97 percent in December, above the 4 percent upper limit of the central bank’s target range.

“The short-end of the curve is being affected negatively,” Gerardo Welsh, the head of money markets at Banco Base SA, said in an e-mailed response to questions. Today’s report supports the central bank’s “expectation that inflation will retake its downward trajectory.”

Banco de Mexico has said that a pick-up in inflation from new taxes on junk food, sugary drinks and higher sales tariffs in regions bordering the U.S. isn’t spreading to the broader economy, and price increases will probably slow to within policy makers’ target range in the second quarter.

Yields on the country’s benchmark peso-denominated notes due in 2024 fell 0.07 percentage point to 6.45 percent.

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

To contact the editor responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net

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