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Mexican Peso Bonds Rise on Rate-Cut Outlook; Currency Advances

Mexican short-term bonds rose, with yields approaching record lows, on mounting speculation that slowing growth will prompt the central bank to cut the target lending rate further this year from a record low 4 percent.

Yields on peso bonds due in June 2014 fell seven basis points, or 0.07 percentage point, to 3.78 percent at 4 p.m. in Mexico City, within a basis point of the record low set May 13, according to data compiled by Bloomberg. The price rose 0.07 centavo to 103.41 centavos per peso. Rates on nine-month interest-rate swaps were little changed at 4.11 percent, signaling the market projects a 96 percent probability of a rate cut in that period.

Mexico’s gross domestic product rose 0.8 percent in the first quarter from a year earlier, the national statistics institute reported May 17. That missed the 1.1 percent median forecast of 18 economists surveyed by Bloomberg. A report due May 23 will show consumer prices slid 0.41 percent in the first two weeks of the month, according to the median forecast of economists surveyed by Bloomberg.

“Bets that Banco de Mexico could cut the reference rate in the second half of the year could increase,” Alejandro Padilla, a strategist at Grupo Financiero Banorte SAB, which projects a 0.5 percentage point rate cut in July, said in a telephone interview from Mexico City. “After the GDP report last Friday and probably with the inflation report this Thursday, more and more people will get on board with this view.”

Mexico’s peso advanced 0.4 percent to 12.2973 per U.S. dollar, rising for the first time since May 8. The currency has rallied 4.5 percent in 2013, the best performance among 16 major currencies tracked by Bloomberg.

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