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Mexico Peso Bonds Fall on Speculation Fed to Defer More Stimulus

Mexico’s peso bonds posted their biggest drop since March, following Treasuries lower, on bets the Federal Reserve will put off more stimulus measures as the world’s largest economy shows signs of strength.

Yields on peso bonds due in 2024 increased 10 basis points, or 0.10 percentage point, to 5.54 percent at 4 p.m. in Mexico City, according to data compiled by Bloomberg. The price fell 1.08 centavo to 139.84 centavos per peso. The peso appreciated 0.3 percent to 13.1342 per dollar.

Mexico’s peso bonds slid along with Treasuries after Goldman Sachs Group Inc. said yesterday that the Fed will hold off in September from a third round of bond buying known as quantitative easing. Industrial production in the U.S., the destination of 80 percent of Mexican exports, gained last month more than economists forecast, the Fed reported today.

“The Treasury trade being unwound in my eyes definitely has to do with people that were overly enthusiastic about the idea of getting quantitative easing,” said Alex Silva, who manages and advises on about $800 million of emerging-market assets including Mexican bonds at Silva Capital Management in Chicago. “Then there’s the ripple effect into other markets.”

The 15-day correlation coefficient between 10-year Mexican government bonds and similar-maturity Treasuries today rose to 0.80, the highest level since 2004. A reading of 1 means the two securities move in lockstep while -1 indicates they move in opposite directions.

Peso’s Gains

The peso’s advance today boosted this year’s rally against the dollar to 6.1 percent, the biggest among the 16 most-traded counterparts tracked by Bloomberg. Mexico’s currency gained 0.7 percent against the yen today.

The central bank held its 2012 gross domestic product forecast at 3.25 percent to 4.25 percent, according to a presentation posted on its website today. It also left its 2013 growth forecast unchanged at 3 percent to 4 percent.

Banxico, as the central bank is known, said consumer prices will rise 3 percent to 4 percent this year and next even after inflation accelerated above that target, with prices climbing 4.42 percent in July from a year earlier. Rising global prices for corn following a drought in the U.S. and an outbreak of avian flu may keep some food prices high in the third quarter, Banxico said.

Yields on inflation-linked bonds due in December 2013 increased seven basis points to 0.24 percent, according to data compiled by Bloomberg.

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