Mexico’s Bond Yields Fall to Record on Rate Outlook; Peso Gains

Mexico’s short-term bond yields fell to record lows as speculation mounted that policy makers may reduce benchmark borrowing costs later this year as the peso posts the biggest rally among major currencies.

Yields on peso-denominated debt due in December fell one basis point, or 0.01 percentage point, to 3.9 percent at 4 p.m. in Mexico City, a record low on a closing basis, according to data compiled by Bloomberg. The currency gained 0.2 percent to 12.2448 per dollar, extending its rally against the greenback this year to 5 percent.

Credit Suisse Group AG said last week that it saw about a 67 percent chance that Banco de Mexico would reduce the target lending rate by another half-percentage point by the end of the year, even after policy makers indicated that their reduction last month to 4 percent from 3.5 percent wasn’t the start of an easing cycle.

The short-term bond market already reflects trader expectations for a rate cut, Roberto Ivan Garcia Castellanos, a bond trader at Casa de Bolsa Finamex SAB in Guadalajara, Mexico, said in a telephone interview. “From August or September on, that’s where the market is discounting a possible cut.”

Banco de Mexico announced today on its website that the Finance Ministry would offer investors a total of 20 billion pesos ($1.6 billion) in fixed-rate bonds due between 2016 and 2024 in exchange for outstanding debt maturing in 2014 and 2015. The central bank also said the government auctioned 23 billion pesos in short-term notes today.

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