Mexican Inflation-Linked Bonds Drop as CPI Falls; Peso Advances

Mexico’s inflation-linked bonds dropped, pushing yields to the highest level in 22 months, as consumer prices fell for the first time since late November.

Yields on inflation-linked debt maturing in December surged 14 basis points, or 0.14 percentage point, to 1.78 percent at 4:00 p.m. in Mexico City, according to data compiled by Bloomberg. They rose to the highest since June 2011 in the biggest increase since August. The peso appreciated 0.6 percent to 12.1702 per dollar, extending its gain in 2013 to 5.6 percent, the biggest rally among the greenback’s 16 major counterparts.

The yields climbed after the national statistics agency reported that prices slid 0.09 percent in the first two weeks of this month from the previous two weeks. Annual inflation quickened to 4.72 percent, the fastest since the second half of September. The rate stayed above the central bank’s target range of 3 percent, plus or minus 1 percentage point.

The report “made the market think that inflation could begin a slowing process starting in May and may fall bellow 4 percent by the end of 2013,” Araceli Espinosa, a fixed-income strategist at the Mexican unit of Bank of Nova Scotia, said in an emailed message. After the figures were released “the market found no value in the Udibonos.”

The central bank said today on its website that the Finance Ministry completed a debt swap that gave investors 19.7 billion pesos of fixed-rate debt due between 2016 and 2024 in exchange for 21.7 billion pesos of the bonds due in 2014 and 2015.

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