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Mexico Peso Extends Monthly Drop as U.S. Yield Jump Curbs Demand

May 31 (Bloomberg) -- Mexico’s peso fell, completing its biggest monthly decline in a year, as a surge in U.S. Treasury yields sapped demand for the Latin American nation’s assets.

The peso depreciated 0.2 percent to 12.8089 per dollar at 4 p.m. in Mexico City, extending the drop this month to 5.3 percent, the biggest since May 2012. The currency had advanced to 11.9771 on May 8, its strongest level since August 2011.

The peso tumbled this month on speculation the Federal Reserve will curtail a program of asset purchases that have kept U.S. yields low. The peso rallied earlier this year as investors in developed markets avoided near-zero interest rates at home and bet that Mexico would pass legal changes to speed economic growth.

This year has been “four months of euphoria in Mexico and three weeks of terror,” Alejandro Silva, who helps oversee $800 million in emerging-market assets at Silva Capital Management in Chicago, said in an e-mailed response to questions.

Yields on benchmark peso-denominated debt maturing in December 2024 rose for an 11th day, increasing five basis points, or 0.05 percentage point to 5.46 percent, the highest closing level since Jan. 11. Yields have surged 94 basis points this month, the most since June 2008.

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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