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Mexico CPI-Linked Bonds Tumble as Inflation Slows; Peso Gains

Mexican bonds linked to consumer price increases fell, pushing yields to a six-month high, as inflation in Latin America’s second-biggest economy slowed more than forecast. The peso climbed on U.S. payroll gains.

The yield on Udibonos debt due in 2014 increased 18 basis points, or 0.18 percentage point, to 1.18 percent at 4 p.m. in Mexico City, the highest closing level since May 24, according to data compiled by Bloomberg. It was the biggest one-day climb in yields since March 17, 2011. Yields on fixed-rate peso bonds maturing in the same year fell one basis point to 4.79 percent.

Mexico’s annual inflation slowed to 4.18 percent in November from 4.60 percent a month earlier, decelerating further after peaking at 4.77 percent in September. Economists forecast a 4.35 percent pace, according to the median of 13 estimates in a Bloomberg survey.

“The supply shock is over,” Edwin Gutierrez, who helps manage about $10 billion of emerging-market debt including Mexican local-currency bonds at Aberdeen Asset Management Plc in London, said in a telephone interview. Today’s sell-off in Udibonos shows that “the market is not looking for inflation protection at this point.”

Mexico’s peso climbed after payrolls rose more than forecast in the U.S., the biggest market for the nation’s exports. The currency advanced 0.2 percent to 12.8505 per dollar today, pushing its advance this week to 0.9 percent. The peso has rallied 8.4 percent this year, the most among the dollar’s 16 most-traded counterparts.

U.S. employers added 146,000 jobs in November, Labor Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg was for an increase of 85,000. Mexico sends about 80 percent of its exports to its northern neighbor.

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