Mexican Bond Yields Hold Near 7-Month Low After Inflation Data

Mexico’s peso bond yields held near a seven-month low after a drop in consumer prices during the first half of this month boosted speculation that policy makers will trim benchmark borrowing costs this week.

The yield on Mexico’s fixed-rate peso-denominated debt due in December 2013 finished trading little changed today at 4.41 percent. The close at that level yesterday was the lowest since Sept. 9, according to data compiled by Bloomberg. The peso increased 0.1 percent to 13.1567 per dollar at 4 p.m. in Mexico City, after dropping 0.6 percent yesterday.

The bonds rallied earlier today after the national statistics agency said consumer prices dropped 0.42 percent during the first two weeks of April as seasonal electricity subsidies went into effect. The median estimate of 14 analysts in a Bloomberg News survey was for a decrease of 0.16 percent. Traders are betting Mexico will join Brazil and India this week in cutting borrowing costs, interest-rate futures show.

Today’s inflation data “reinforces somewhat” that Banco de Mexico will cut rates, Kenneth Lam, a Latin America currency and local rates strategist at Citigroup Inc., said by phone from New York. “You’ve got very heavy positioning. There are a lot of people in the trade expecting the cut.”

Policy makers in Latin America’s second-biggest economy are scheduled April 27 to announce whether they will reduce the nation’s target lending rate from a record low 4.5 percent.

Annual inflation slowed to 3.73 percent in March, the statistics agency reported April 9. That’s within the country’s target of 3 percent, plus or minus 1 percentage point.

“If current favorable conditions in the inflation outlook are consolidated, it may be advisable to adjust downward the benchmark interest rate,” the central bank said in the minutes of its last policy meeting, published March 30.

Mexico’s economy expanded 6.24 percent in February from a year earlier, the national statistics agency also said today. The economy was expected to grow 5.5 percent, as measured by the global economic indicator, according to the median estimate of 15 analysts in a Bloomberg News survey.

Mexico sold all 7 billion pesos of 28-day Cetes and 8 billion pesos of the 91-day securities it offered today, the central bank said on its website. Mexico also sold all 8.5 billion pesos in 175-day bills it auctioned, the bank said.

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