Mexico Longer-Term Bonds Rally on Growth Outlook; Peso Declines

Mexico’s longest-dated peso bonds rallied for a third day as policy makers indicated that they’re moving toward reducing growth forecasts, sinking speculation that borrowing costs will increase.

Fixed-rate securities due in 2042 climbed 0.43 centavo to 105.93 centavo per dollar at 4 p.m. in Mexico City, pushing the yield down three basis points, or 0.03 percentage point, to 7.26 percent. The peso was little changed at 13.0086 per dollar.

Most central bank board members at last month’s policy meeting said they will need to reduce the 2014 growth forecast from the current estimate of 3 percent to 4 percent, according to the minutes published April 4. Moody’s Investors Service said when it raised Mexico’s credit rating in February that changes to boost competition in telecommunications and end the nation’s oil-drilling monopoly will add 1 percentage point to the nation’s long-term growth rates.

“The economy in Mexico doesn’t seem to be reflecting all this optimism around the reforms,” Alejandro Silva, a founding partner of Chicago-based Silva Capital Management LLC, which oversees $800 million of emerging-market assets, said in a phone interview. “You’re probably going to want to take a look at taking on some more duration risk.”

Finance Minister Luis Videgaray said April 3 that the government would maintain timely spending to boost growth and that the economy would recover in 2014 and 2015.

Latin America’s second-biggest economy will expand 3.2 percent this year, almost triple last year’s growth, according to the median forecast of economists surveyed by Bloomberg.

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

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

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