Mexico Yields Rise to Three-Week High on Reduced Refuge Demand

Mexico’s peso bonds fell, following Treasuries lower and pushing the Latin American nation’s yields to a three-week high, as better-than-forecast U.S. industrial output reduced demand for assets seen as a refuge.

Yields on Mexico’s peso bonds due in 2024 rose three basis points, or 0.03 percentage point, to 5.45 percent at 4 p.m. in Mexico City, the highest close basis since Sept. 21, according to data compiled by Bloomberg. The price fell 0.31 centavo to 140.45 centavos per peso. The currency depreciated 0.2 percent to 12.8337 per dollar after touching a one-week intraday high of 12.7702.

Demand for Treasuries and Mexican bonds is declining after data showed “the U.S. numbers are slightly better,” Dirk Willer, the head of Latin American local markets strategy at Citigroup Inc., said by phone from New York. “In general, the U.S. growth data have been surprising on the positive side for a long time.”

Output from U.S. factories, mines and utilities rose 0.4 percent in September after a 1.4 percent decrease in the prior month, the Federal Reserve reported today. The median forecast of 85 economists in a Bloomberg survey was for a 0.2 percent increase. The Commerce Department reported yesterday that retail sales gained last month more than forecast. The U.S. is the destination for about 80 percent of Mexico’s exports.

The 60-day correlation coefficient between 10-year peso bonds and Treasuries rose today to 0.58 from 0.49 on Oct. 12, according to data compiled by Bloomberg. A reading of 1 would mean the two securities move in lockstep. The measure was negative as recently as Aug. 2.

2012 Gain

The peso’s decline today pared this year’s gain to 8.6 percent, still the biggest advance among the dollar’s 16 most-traded counterparts.

Mexico sold all 7 billion pesos ($546 million) in one-month bills, known as Cetes, that it offered today at auction, according to the central bank. The Finance Ministry also sold all 8 billion pesos of the three-month securities, 9 billion pesos of the six-month notes and 9.5 billion pesos of 336-day bills that it offered.

The central bank also reported today on its website that Mexico’s international reserves fell by $217 million last week to $161.5 billion, dropping for a second straight five-day period. Mexico’s reserves have climbed 13 percent this year, giving central bank Governor Agustin Carstens greater leeway to intervene in the foreign exchange market to buoy the peso if needed.

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