Mexican Bonds Rally as ECB Rate Cut Buoys Risk Bid; Peso Slips

Nov. 7 (Bloomberg) -- Mexico’s benchmark local-currency bonds rallied, pushing yields down the most in two weeks, after Europe’s surprise reduction in borrowing costs spurred demand for higher-yielding peso assets.

Yields on the securities due in 2024 fell four basis points, or 0.04 percentage point, to 6.11 percent at 4 p.m. in Mexico City, according to data compiled by Bloomberg. The peso dropped 0.4 percent to 13.2241 per U.S. dollar.

Bonds climbed after the European Central Bank cut its main refinancing rate today by a quarter-percentage point to 0.25 percent, a decision forecast by only three of 70 economists surveyed by Bloomberg. Foreign investors increased holdings of the Mexican bonds known as Mbonos to a record high last month as the U.S. Federal Reserve maintained its $85 billion in monthly asset purchases to support the economy.

“It’s global liquidity,” Kevin Daly, who helps oversee about $10 billion in emerging-market debt including Mexican government bonds at Aberdeen Asset Management Plc, said in a telephone interview from London. “It’s just all positive for risk assets, so that explains why Mbonos are rallying with pretty much everything else today.”

In Mexico, the national statistics agency said today that consumer prices rose in October by the most in seven months as electricity costs climbed and the central bank cut interest rates. Prices increased 0.48 percent from a month earlier, compared with the 0.46 percent median forecast of 20 economists in a Bloomberg survey. Annual inflation slowed to 3.36 percent, the least since January, from 3.39 percent in September.

In its quarterly inflation report yesterday Banco de Mexico raised its inflation estimate for next year to 3.5 percent from near 3 percent previously. Policy makers target annual inflation at 3 percent, plus or minus 1 percentage point.

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