Mexico Peso Bonds Surge on Fed Stimulus Comments; Currency Gains

Mexico’s peso bonds jumped, pushing yields down the most since November 2011, after a Federal Reserve official supported a stimulus program that has buoyed emerging-market assets.

Yields on local currency debt due in 2024 dropped 17 basis points, or 0.17 percentage point, to 5.25 percent at 4 p.m. in Mexico City, according to data compiled by Bloomberg. The decline was the biggest on a closing basis since Nov. 30, 2011. The peso rose 0.2 percent to 12.7141 per dollar.

Bonds are rising for a second day after Atlanta Fed President Dennis Lockhart said yesterday that officials are committed to the record program of asset purchases even as divergent views on when to start paring it back create a “mixed message” for investors. Foreigners’ holdings of Mexican fixed-rate government debt fell to a three-week low on May 24, two days after Fed Chairman Ben S. Bernanke indicated that policy makers may curtail stimulus if the U.S. economy shows signs of sustained recovery.

“There was a big selloff,” Pedro Tuesta, a Washington-based Latin America economist at 4Cast, said in a telephone interview. “A lot of people were looking at what was the right level to go back” into Mexican bonds.

Demand for Mexican fixed-income debt surged earlier this year, driving yields to record lows, as foreign investors avoided near-zero interest rates at home and bet Mexico would pass legislation to boost economic growth.

Salvador Orozco, deputy director for money markets and exchange at Grupo Financiero Santander Mexico SAB, said in a telephone interview that the increase in the difference between yields on U.S. and Mexican government debt is helping spur today’s rally.

The yield gap between 10-year U.S. Treasuries and Mexican government bonds maturing in a decade surged to a four-month high of 3.35 percentage point on May 31. It has since narrowed by 22 basis points, according to data compiled by Bloomberg.

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