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Mexico Bond Yields Decline Before Inflation Report; Peso Drops

Feb. 6 (Bloomberg) -- Yields on Mexico’s peso bonds fell to record lows before a government report forecast to show inflation slowed to a 16-month low in January.

The yield on the government’s peso-denominated debt due in December dropped four basis points, or 0.04 percentage point, to 4.3 percent at 4 p.m. in Mexico City, the lowest closing level since the bonds were first issued in 2004, according to data compiled by Bloomberg. The peso dropped 0.4 percent to 12.6819 per dollar, the worst performance among major Latin American currencies.

Analysts estimate that a national statistics agency report due tomorrow will show the annual inflation rate fell to 3.17 percent last month, the lowest since September 2011. Central bank board members said in the minutes of last month’s policy meeting, released Feb. 1, that slower inflation appears to be gaining traction while risks to growth persist, fueling speculation they’ll cut borrowing costs this year.

“If inflation continues to ease and the peso remains stable, rate cut prospects are likely to strengthen and drive yields lower,” Aryam Vazquez, a New York-based economist at Wells Fargo & Co., said in an e-mailed message. “Certainly inflation and rate expectations are a driving force.”

The yield on Mexico’s peso-denominated bond due in 2024 fell one basis point to 5.06 percent, also a record low closing level.

To contact the reporter on this story: Ben Bain in Mexico City at bbain2@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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