Mexico’s peso bonds rallied, pushing yields down the most in four weeks, and the currency rose as a U.S. agreement pushed a budget battle that damped demand for the Latin American nation’s debt into early next year.
“This uncertainty ended, at least temporarily,” Rafael Camarena, an economist at Grupo Financiero Santander Mexico SAB, said in a telephone interview from Mexico City.
Yields on the benchmark securities due in December 2024 fell 14 basis points, or 0.14 percentage point, to 5.71 percent at 4 p.m. in Mexico City, according to data compiled by Bloomberg. The currency appreciated 0.5 percent to 12.7773 per U.S. dollar, the strongest on a closing basis since Sept. 19.
The bonds also gained after a committee of Mexico’s lower house approved a bill that avoided sales taxes on private education tuition, mortgage interest and home sales and rentals, some of the levies that the Finance Ministry proposed last month. The lawmakers signaled that Mexico’s tax overhaul won’t be as inflationary as some analysts had thought, allowing the central bank to cut borrowing costs and fuel further gains in fixed-rate bonds, Camarena said.
The committee voted 30-12, with one abstention, to approve a modified version of President Enrique Pena Nieto’s proposal, increasing the top income tax rate to 35 percent and adding a 5 percent tax on high-fat foods, according to a draft of the bill.
In the U.S., lawmakers agreed late yesterday after weeks of wrangling to fund the federal government and increase the debt limit, allowing Mexico’s biggest trading partner to avoid default.