Mexico Peso Volatility Rises for Ninth Day on Fed; Bonds Tumble

Mexican peso volatility climbed for a ninth day on concern the Federal Reserve will curtail a stimulus program that has buoyed emerging-market assets.

Three-month historical volatility, a measure of the magnitude of the peso’s fluctuations during the period, rose to an eight-month high of 10.42 percent at 4 p.m. in Mexico City, according to data compiled by Bloomberg. The currency slumped 1.2 percent today, erasing its rally for 2013.

Demand for Mexican local-currency assets has fallen as better-than-forecast U.S. economic data fueled speculation that the Fed will scale back unprecedented asset purchases, known as quantitative easing or QE.

“If the U.S. really tapers off QE, the peso is going to be hit,” Pedro Tuesta, a Washington-based Latin America economist at 4Cast, said in a telephone interview. “So everybody says, ‘I’d better cover my back.’ And that’s why the peso is weak.”

The yields on benchmark government peso bonds maturing in 2024 surged 16 basis points, or 0.16 percentage point, to 5.56 percent, according to data compiled by Bloomberg. The price fell 1.71 centavo to 137.67 centavos per peso.

The extra yield investors demand to hold 10-year Mexican peso bonds instead of U.S. Treasuries rose to an almost five-month high of 3.41 percentage points.

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