Mexican Peso Bond Yields Plunge as Japanese Stimulus Lures Funds

April 19 (Bloomberg) -- Mexico’s peso bond yields tumbled to a record low on speculation that Japan’s economic stimulus measures will add to foreign investment in Latin America’s second-biggest nation.

Yields on peso bonds due in 2024 tumbled five basis points, or 0.05 percentage point, to 4.61 percent at 4 p.m. in Mexico City, a record-low close, according to data compiled by Bloomberg.

Mexico has been benefiting from a surge in inflows from Japanese investors seeking higher-yielding assets. Japanese Finance Minister Taro Aso said yesterday that his nation’s policies went unopposed at the Group of 20 meeting in Washington, signaling further weakening of the yen as the central bank pushes ahead with stimulus measures. Investment in Mexico from Japanese mutual funds, known as Toshins, almost tripled in the seven months through March to a record 268 billion yen ($2.7 billion), according to Nomura Holdings Inc.

Declining yields are a sign of “foreign flows, among them from the Japanese,” Alejandro Padilla, a Mexico City-based strategist at Grupo Financiero Banorte SAB, said in an e-mailed response to questions. “There’s strong appetite for Mexican bonds.”

Foreigners held a record 37 percent of Mexican government bonds on April 1, according to the central bank.

Yields also reflect speculation that the central bank may use its next rate decision statement to signal the possibility of additional cuts in benchmark borrowing costs, Padilla said. Some investors betting on losses in the securities have probably been closing out those positions, a practice known as short covering, he said.

Currency Commission

The peso increased 0.1 percent to 12.2620 per U.S. dollar, pushing its advance to 4.8 percent this year, the most among the dollar’s 16 major counterparts tracked by Bloomberg. It rose 1 percent against the yen today, pushing its advance against the Japanese currency to 20 percent in 2013.

Deputy Finance Minister for Revenue Miguel Messmacher said in an interview yesterday the country’s currency commission wouldn’t intervene because of the level of the exchange rate and that any new measure would depend on whether the currency market is operating adequately. The currency commission, which is made up of officials from the central bank and Finance Ministry, announced April 8 they were suspending dollar auctions after the peso touched its strongest since August 2011.

Mexico’s peso jumped as much as 0.7 percent after an agreement between Anheuser-Busch InBev NV and the U.S. sparked speculation that the Belgian brewer would be able to move forward with its purchase of Corona-maker Grupo Modelo SAB.

“There’s speculation that a flow is going to come into the country to complete the acquisition,” Ramon Cordova, a currency trader at Banco Base SA in San Pedro Garza Garcia, Mexico, said in a telephone interview. “The release of this news coincided with the peso’s appreciation.”

To contact the reporter on this story: Jonathan Levin in Mexico City at jlevin20@bloomberg.net

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