Mexico’s Benchmark Bond Yields Fall to Record; Peso Declines

Mexico’s benchmark peso bond yields fell to record lows as traders solidified bets that the Latin American country’s policy makers will cut benchmark borrowing costs for the first time in three years.

Yields on local-currency bonds due in 2024 declined less than 0.01 percentage point, to 5.056 percent, the lowest yield on a closing basis since the debt was issued in 2005. The price on the debt rose 0.03 centavo to 143.90 centavos per peso at 4 p.m. in Mexico City. The peso declined 0.7 percent to 12.7992 per U.S. dollar.

Interbank futures contracts show that traders are betting central bank board members led by Governor Agustin Carstens will probably announce a cut to the 4.5 percent benchmark rate after their next meeting on March 8. Mounting speculation for a rate cut since inflation peaked in September has spurred inflows from global investors who are seeking to benefit from a bond rally.

“A rate cut is already discounted,” Jose Carreno, a bond trader at Banco Base SA, said in a phone interview from San Pedro Garza Garcia, Mexico. “Now it’s just confirming this movement.”

Banco de Mexico reiterated on Feb. 13 it may cut the target rate after inflation in January slowed to 3.25 percent, the lowest since October 2011.

Foreign investment in the $147 billion market for fixed-rate peso bonds, known as Mbonos, was 54.7 percent on Feb. 14, compared with 44 percent a year earlier, according to the most recent data from the central bank.

The central bank said today in a report that portfolio investment rose to $73.4 billion last year from $45.9 billion in 2011.

Most of the 25 major emerging market currencies tracked by Bloomberg declined today. The peso reversed an earlier drop, following U.S. stocks lower, as partial election results spurred concern about prospects for a stable government in Italy and a worsening of Europe’s debt crisis.

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