Mexico Peso Volatility Falls as Inflows Offset Europe

Mexican peso volatility is holding near a one-year low as record inflows from foreign investors seeking to profit from the country’s higher-yielding assets offset the European debt crisis’ drag on the currency.

One-month historical volatility, which measures the magnitude of the peso’s fluctuations over the period, was 9.07 percent at 4 p.m. in Mexico City, the lowest level since July 2011, according to data compiled by Bloomberg. The currency depreciated 0.2 percent to 12.8563 per U.S. dollar.

Foreign mutual funds, pensions and hedge funds have poured a record amount into Mexican securities in 2012, according to EPFR Global data. That surge has helped to fuel a 8.4 percent rally in the peso, the biggest winner among the dollar’s most-traded counterparts tracked by Bloomberg.

“These flows have been compensating a bit for global uncertainty,” Rafael Camarena, an economist at Banco Santander SA, said by phone from Mexico City. The result has been “peso stabilization.”

The peso posted the worst performance among major Latin American currencies last year as the sovereign-debt crisis in Europe and its effects on global growth damped demand for higher-yielding assets.

Yields on peso-denominated bonds due in 2024 rose three basis points, or 0.03 percentage point, to 5.43 percent today, according to data compiled by Bloomberg. The price fell 0.26 centavo to 140.75 centavos per peso.

(Corrects peso volatility level in second paragraph.)
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