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Mexican Local Bond Yields Fall on Rate Differential; Peso Rises

Mexican peso bonds rallied, sending yields to a two-week low, as investors sought to profit from the country’s higher borrowing costs amid escalating speculation that U.S. policy makers won’t raise interest rates.

The yield on Mexican local currency bonds due in 2014 fell two basis points, or 0.02 percentage point, to 4.84 percent, the lowest level since March 13, at 7:33 a.m. in Mexico City, according to data compiled by Bloomberg. The yield on peso-denominated debt due in 2024 fell two basis points to 6.5 percent, also the lowest since March 13. The price on the 2024 securities rose 0.16 centavo to 130.23 centavos per peso.

Mexican central bankers are scheduled to release on March 30 the minutes of this month’s policy meeting in which they kept borrowing costs at a record-low 4.5 percent. Federal Reserve Chairman Ben S. Bernanke said yesterday that continued U.S. accommodative monetary policy will be needed to make further progress in reducing unemployment.

“The interest-rate differential has always been very attractive for countries like Mexico,” Kevin Daly, a portfolio manager at Aberdeen Asset Management Plc, said by phone from London. “There’s still the expectation that the Fed is not going to be doing anything anytime soon and, of course, Bernanke reinforced that with his comments the past few days.”

The Federal Open Market Committee repeated on March 13 that interest rates are likely to stay low at least through late 2014.

Investors aren’t expecting the Mexican meeting minutes later this week to show a shift in monetary policy, Daly said.

The peso advanced 0.2 percent to 12.6424 per U.S. dollar, from 12.6672 yesterday. The currency has gained 10 percent this year, the most among major currencies tracked by Bloomberg.

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