Mexico Peso Swings Decline to Four-Year Low Amid Foreign Demand

Swings in Mexico’s peso are tumbling to a four-year low as foreign investors pour money into the country’s higher-yielding assets, supporting the currency.

Three-month historical volatility, which measures the magnitude of the peso’s fluctuations over the period, declined for a fifth day, falling to 7.76 percent at 4 p.m. in Mexico City, the lowest closing level since September 2008, according to data compiled by Bloomberg. The currency was little changed at 12.6854 per U.S. dollar.

Volatility in the peso has been falling as global investors seek the country’s higher yields amid mounting speculation that policy makers may reduce the country’s target lending rate as soon as next month. The most recent data from the central bank shows the percentage of fixed-rate government bonds held by foreigners earlier this month remained near a 13-year high of 55 percent.

Flows have been “very significant,” Rafael Camarena, an economist at Grupo Financiero Santander Mexico SAB, said in a telephone interview. “The increase of bonds in the hands of foreigners was very high.”

Yields on peso-denominated bonds due in 2024 declined one basis point, or 0.01 percentage point, to 5.09 percent today, according to data compiled by Bloomberg. The price rose 0.15 centavo to 143.63 centavos per peso. Yields on the debt maturing this December was little changed at 4.26 percent.

Mexico’s economy accelerated more than analysts forecast in the fourth quarter, led by growth in agriculture and services growth, lifting annual growth to 3.9 percent for 2012.

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