Mexico Bond Yields Rise to Seven-Week High on CPI; Peso Advances

Mexico’s peso bond yields climbed to a seven-week high after central bank Governor Agustin Carstens said policy makers are “very concerned” about the pace of inflation in Latin America’s second-biggest economy.

The yield on local bonds due in 2021, known as Mbonos, rose two basis points to 5.45 percent at 4 p.m. in Mexico City. It’s the highest close since Sept. 17. The peso advanced 0.6 percent to 12.9607 per dollar, pushing its gain in 2012 to 7.5 percent.

Policy makers are facing inflation that has remained above the central bank’s target range of 2 percent to 4 percent since June. The annual inflation rate increased to 4.77 percent in September from 4.57 percent the previous month, the national statistics agency said on Oct. 9. Whether or not the monetary authority raises benchmark borrowing costs will depend on “what happens in the near future,” Carstens said yesterday in an interview in Mexico City.

“Essentially what they’re saying is, ‘We’re much more hawkish,” Enrique Alvarez, the head of Latin America fixed-income research at IdeaGlobal said in a telephone interview from Belle Mead, New Jersey. “What Carstens is essentially telling you is that if you hold Mbonos your real return is going to be diminishing.”

The central bank said in its Oct. 26 monetary policy decision announcement that it could raise the 4.5 percent reference rate “soon” should price increases fail to slow. The bank is scheduled to deliver its third-quarter inflation report tomorrow and releases minutes from its most recent meeting on Nov. 9.

Emerging-Market Currencies

The peso rose with most emerging-market currencies as voters in the U.S., the destination for 80 percent of Mexico’s exports, decide today between President Barack Obama and Republican challenger Mitt Romney. The next president will need to deal with more than $600 billion in tax increases and spending cuts set to take effect in 2013 unless Congress can reach a budget compromise.

Trading volume is light, according to Eduardo Suarez, a Latin America strategist at Scotiabank in Toronto. “People are just waiting for tonight,” he wrote by e-mail.

One-month historical volatility on the peso, which measures the magnitude of the peso’s fluctuations over the period, was 8.01 percent, compared with 8.95 percent a month ago, according to data compiled by Bloomberg.

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