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Mexico Peso Strengthens as Fed Pledge Fuels Demand for Yield

Mexico’s peso strengthened after the Federal Reserve said it will keep the benchmark U.S. interest rate low until at least late 2014, bolstering demand for higher-yielding assets.

The peso rose 0.6 percent to 13.0190 per U.S. dollar at 4 p.m. in Mexico City, from 13.0998 yesterday. The peso, which pared an earlier drop of as much as 0.7 percent, has appreciated 7 percent this year.

Emerging-market currencies reversed losses after the Fed extended its pledge to hold the key borrowing cost at zero to 0.25 percent until late 2014. Mexico reported a preliminary trade surplus in December, surprising economists who had forecast a deficit.

“With the news today regarding rates to be extremely low in the U.S. until 2014, you want to be in a currency that has a high yield,” said Ramon Cordova, a currency trader at Base Internacional Casa de Bolsa in Monterrey, Mexico. “The peso is where a lot of funds will want to be to get exposure to a good rate and good quality bonds.”

The yield on Mexico’s peso-denominated bonds due in 2024 declined seven basis points, or 0.07 percentage point, to 6.26 percent, according to data compiled by Bloomberg. The price of the securities rose 0.72 centavo to 133.01 centavos per peso.

Mexico sends about 80 percent of its exports to the U.S. The Latin American country had a preliminary trade surplus of $7.7 million in December, the nation’s statistics agency reported on its website today. Economists forecast a trade deficit of $359.5 million, according to the median estimate in a Bloomberg survey.

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