Mexico Bond Yields Tumble on Slower Inflation; Peso Advances

Mexico’s local currency bonds rallied, pushing yields to a record low, after the government said inflation slowed in the first half of January, supporting demand for the debt’s fixed returns.

The yield on Mexico’s peso-denominated bond due in 2024 dropped four basis points, or 0.04 percentage point, to 5.10 percent at 9:53 a.m. in Mexico City, the lowest level ever on a closing basis, according to data compiled by Bloomberg. The price rose 0.47 centavo to 143.62 centavos per peso. The peso advanced 0.6 percent to 12.6172 per dollar, the biggest gain among the 16 major currencies tracked by Bloomberg.

Mexico’s fixed-rate debt rose after the national statistics agency reported that prices climbed 0.15 percent in the first half of January, slowing annual inflation to 3.21 percent, the lowest rate since October 2011. Policy makers said on Jan. 18 that if a “downward trend in general and core inflation” is confirmed, a rate cut may be “advisable.”

“It gives a little more confidence to the market,” Jose Carreno, a bond trader at Banco Base SA, said in a phone interview from San Pedro Garza Garcia, Mexico. “The data show that the rates will stay low.”

The peso advanced after claims for jobless benefits in the U.S. unexpectedly dropped to a five-year low, boosting the outlook for Mexico’s exports. About 80 percent of the country’s goods and services sent abroad go to its northern neighbor.