Mexico’s Peso Implied Volatility Increases Amid Fed Speculation

The Mexican peso’s implied volatility rose to a three-week high as investors speculated over when the U.S. Federal Reserve will slow bond purchases that have fueled demand for emerging-market assets.

One-month implied volatility on options for the peso, which reflect traders’ projections for price fluctuations, rose to 11.9 percent at 4 p.m. in Mexico City, according to data compiled by Bloomberg. The gauge of currency swings was last that high on Oct. 14. The peso depreciated 0.1 percent to 13.1730 per U.S. dollar today.

The increase in implied volatility “ties back in with a risk-averse move in emerging markets,” Alejandro Silva a founding partner at Silva Capital Management LLC who helps oversee $800 million of emerging-market assets, said in an e-mailed response to questions.

Yields on benchmark peso bonds maturing in 2024 were little changed at 6.15 percent, according to data compiled by Bloomberg.

The peso, which slumped the most in two months yesterday, may gain should Mexican lawmakers approve legal changes to open up the country’s energy industry more than the government first proposed in August, according to Nomura Holdings Inc.

President Enrique Pena Nieto is seeking to end a 75-year-old state monopoly on pumping crude and to attract investment from companies like Exxon Mobil Corp. and Chevron Corp. The government says the plan would boost growth by 1 percentage point by 2018.

Preliminary Accord

Mexico’s two largest parties have reached a preliminary accord that would give oil producers more control over some projects than the original proposal would have allowed, according to three people with direct knowledge of the agreement.

“The market is simply not looking at the huge potential impact if the energy bill ends up including a production-sharing agreement or even licenses,” Benito Berber, a Nomura strategist, wrote in a note to clients today.

Gross domestic product will expand 0.9 percent to 1.4 percent this year compared with the 2 percent to 3 percent previously forecast, the central bank said in its quarterly inflation report published today. In 2014, the economy will grow 3 percent to 4 percent, down from the 3.2 percent to 4.2 percent previously estimated.

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