Mexico Bond Yields Fall on Rate-Cut Speculation; Peso Advances

Yields on Mexico’s short-term bonds touched record lows as the central bank said inflation will remain in its target range, fueling speculation that policy makers will reduce interest rates for the first time since 2009.

Yields on peso-denominated debt due in December fell two basis points, or 0.02 percentage point, to 4.30 percent at 3:35 p.m. in Mexico City, according to data compiled by Bloomberg. It’s the lowest level on a closing basis since the bonds were first issued in 2004. Mexico’s currency rose 0.1 percent to 12.6870 per U.S. dollar.

While inflation will pick up temporarily around the end of the first quarter and the start of the second quarter of this year, it won’t affect convergence toward the 3 percent target, the central bank said in a report today. Governor Agustin Carstens said today in Mexico City that while policy makers haven’t made any decisions on cutting the 4.5 percent benchmark rate, they have noticed market bets for a reduction in borrowing costs.

Yields on the bonds “declined on the expectation for a rate cut,” Roberto Ivan Garcia Castellanos, a fixed-income trader at Casa de Bolsa Finamex SAB, said in a telephone interview from Guadalajara, Mexico. “The central bank is giving more certainty that it could do it.”

Consumer prices rose 3.25 percent in January from a year earlier, the slowest pace since October 2011, according to data released by the national statistics agency on Feb. 7.

Banco de Mexico has left the target lending rate unchanged for a record 32 straight meetings.

On Jan. 18 the central bank signaled in a statement that it’s willing to cut the rate if a “downward trend in general and core inflation” is confirmed.

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