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Mexico’s Bonds Set for Worst Year Since 2008 as Peso Declines

Mexico’s peso bonds headed for the biggest yearly decline since 2008 on concern that the Federal Reserve’s decision to cut U.S. stimulus will reduce liquidity in global capital markets and squelch demand for the securities.

Yields on fixed-rate peso bonds due in 10 years have risen 1.05 percentage points this year to 6.43 percent, according to data compiled by Bloomberg. A close at that level tomorrow would be the biggest annual increase since they jumped 1.22 percentage points in 2008. The yields fell 0.05 percentage point today. The peso weakened 0.1 percent today to 13.0718 per dollar at 4 p.m. local time, leaving it down 1.7 percent in 2013.

Mexico’s bonds tumbled in the second half of 2013 as investors debated when the Fed would slow the pace of monthly bond purchases before its Dec. 18 decision to cut them by $10 billion to $75 billion. Concern that the reduced stimulus will damp demand for the debt outweighed prospects for economic growth after the Latin American country enacted constitutional changes to open up the oil industry to competition.

“It was about the stimulus,” Jose Carreno, a bond trader at Banco Base SA, said in a telephone interview from San Pedro Garza Garcia, Mexico. “It was what moved the market a lot.”

In its weekly debt auction today, Mexico’s Finance sold 7 billion pesos in 28-day Cetes, 10.5 billion pesos in 91-day bills and 11.5 billion pesos in notes maturing in 175 days, according to the central bank. It also placed 10.5 billion pesos to yield 5.33 percent with the bid-to-cover ratio, a measure of demand, at 1.8.

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