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Mexico Bond Yields Drop Most in Five Weeks as Growth Accelerates

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May 17 (Bloomberg) -- Yields on Mexico’s peso bonds dropped the most in five weeks as gross domestic product growth accelerated in the first quarter and the central bank raised its forecast for expansion in Latin America’s second-biggest economy.

The yield on Mexican local-currency bonds due in December 2014 fell seven basis points, or 0.07 percentage point, to 4.75 percent at 4 p.m. in Mexico City, according to data compiled by Bloomberg. It was the biggest decline since April 9.

Mexico’s debt rallied after the national statistics agency reported today that the economy expanded 4.6 percent during the first quarter from a year earlier, the fastest pace since 2010. Banco de Mexico boosted yesterday its estimate for economic expansion this year to a range of 3.25 percent to 4.25 percent from its prior projection of 3 percent to 4 percent.

“The growth story is indeed a key driver,” Aryam Vazquez, an economist for global emerging markets at Wells Fargo & Co., said in a phone interview from New York. “Authorities are affirming that inflation is not a threat.”

In addition to boosting its growth forecast as part of its quarterly inflation report yesterday, policy makers signaled that risks of faster consumer price increases have diminished. Annual inflation slowed last month to 3.41 percent, the lowest level among major economies in Latin America. Banco de Mexico has left the target lending rate at a record low 4.5 percent since July 2009.

The peso depreciated 0.5 percent to 13.8393 per dollar today. It has dropped 6 percent in May, the most among major Latin American currencies tracked by Bloomberg.

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

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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