Mexico’s CPI Bonds Slump as Inflation Concern Wanes; Peso Rises

(Corrects date of Carstens comments in third paragraph.)

Mexico’s inflation-linked bonds dropped to a five-year low after central bank Governor Agustin Carstens said yesterday that consumer price increases will slow toward the official 3 percent target in 2015.

The price on inflation-linked securities due in December fell 0.03 centavo to 102.53 centavos per peso today, the lowest level since 2009. Yields rose three basis points, or 0.03 percentage point, to 1 percent and increased 23 basis points since March 21. The peso appreciated less than 0.1 percent to 13.0730 per U.S. dollar and was up 1.2 percent this week, the most since Dec. 6.

Carstens told reporters March 26 in Mexico City that the central bank expects inflation slower than 4 percent for the rest of this year and a convergence toward the 3 percent target at the beginning of 2015. Speaking today at an event sponsored by the Economic Club of New York, he said domestic competition could help slow inflation.

“It is the market agreeing with the fact that a bout of high inflation is not to be expected,” Alejandro Urbina, a money manager at Chicago-based Silva Capital Management LLC, which oversees $800 million including Mexico debt, said in an e-mailed response to questions. “Or that the levels we are seeing right now are very temporary.”

Inflation slowed to 3.89 percent in the first half of March from 4.26 percent at the end of February, the national statistics agency reported this week.

To contact the reporter on this story: Alexandria Baca in New York at abaca3@bloomberg.net

To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net Dennis Fitzgerald, Bradley Keoun

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