Mexico’s Peso Surges as Fed Stimulus Bolsters Bonds and Stocks

Sept. 18 (Bloomberg) -- Mexico’s currency, bonds and stocks surged as the U.S. Federal Reserve refrained from paring an $85 billion monthly stimulus program that has fueled demand for the Latin American nation’s securities.

The peso jumped 1.8 percent to 12.6798 per dollar at 2:58 p.m. in Mexico City, its biggest gain on a closing basis since June 13. Yields on peso bonds maturing in 2024 tumbled 23 basis points, or 0.23 percentage point, to 5.90 percent, the biggest drop since November 2011, according to data compiled by Bloomberg. Mexico’s benchmark IPC stock index of 35 companies rose 1.9 percent.

Mexican securities rallied today after the Fed held back from paring record accommodation as rising borrowing costs showed signs of slowing the four-year U.S. expansion. Foreign holdings of fixed-rate Mexico government bonds had declined from a record reached in May, when Fed Chairman Ben S. Bernanke said the U.S. central bank may curtail stimulus. The IPC index had dropped from its all-time high touched in January.

The Fed’s surprise decision “reverses some of the punishment that was already priced in to a variety of assets,” Arturo Espinosa, a stock strategist at the local unit of Banco Santander SA, said in a telephone interview from Mexico City. “This is particularly the case in Mexico above all because of the close ties it has with the U.S. economically as well as in financial markets.”

Economists surveyed by Bloomberg had forecast that the Fed would reduce monthly Treasury purchases by $5 billion, to $40 billion, while maintaining its buying of mortgage-backed securities at $40 billion. Mexico’s northern neighbor is its biggest trading partner.

Mexico’s currency was the best performer today after the Brazilian real among major Latin American dollar counterparts. The peso fell to a 13-month low on Sept. 5.

“Valuations are cheap, especially since the taper did not come,” Alejandro Urbina, who helps oversee $800 million at Silva Capital Management LLC, including Mexican government bonds, said in an e-mailed response to questions.

To contact the reporters on this story: Ben Bain in Mexico City at bbain2@bloomberg.net; Jonathan Levin in Mexico City at jlevin20@bloomberg.net

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