Mexico’s Local Bond Yields Rise on Fed Speculation; Peso Falls

Mexican peso bonds fell, pushing yields to a four-week high, as speculation that the U.S. Federal Reserve will consider scaling back its record program of asset purchases reduced demand.

The yield on peso bonds due in 2024 climbed eight basis points, or 0.08 percentage point, to 4.70 percent at 4 p.m. in Mexico, according to data compiled by Bloomberg. It’s the highest level on a closing basis since April 17. The currency depreciated 0.3 percent to 12.1959 per U.S. dollar, paring its rally this year to 5.4 percent, still the biggest among 16 major currencies tracked by Bloomberg.

Mexican local-currency bonds dropped along with U.S. Treasuries after Philadelphia Fed President Charles Plosser reiterated his view that the central bank should begin to curtail asset purchases in its quantitative easing program as early as its next meeting.

“The speculation for an end to the Fed’s stimulus continues, pressuring Treasuries and therefore Mexican bonds,” Gerardo Welsh, a bond trader at Banco Base SA, said in an e-mailed response to questions.

The 30-day correlation coefficient between 10-year peso bonds and similar-maturity Treasuries rose to 0.41 today after being negatively correlated as recently as May 2, according to data compiled by Bloomberg. A reading of 1 would signal that the securities moved in lockstep. Mexico sends about 80 percent of its exports to the U.S.

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