Mexico’s Long-Term Peso Debt Rises After Auction; Currency Falls

Mexico’s longest-term peso bonds rose for a second day as the results of a government auction yesterday indicated that demand for the securities may rebound.

Yields on peso-denominated debt due in November 2042 fell almost one basis point, or 0.01 percentage point, to 6.7 percent at 5:21 p.m. in Mexico City, according to data compiled by Bloomberg. The yield declined 10 basis points yesterday. The peso weakened 0.8 percent to 12.9314 today.

The government sold 4.5 billion pesos ($348 million) in 30-year debt yesterday at a yield of 6.71 percent. The bid-to-cover ratio, a measure of investor demand, was 3.96. Yields on the 2042 bonds surged 46 basis points in the four days before the sale as concern mounted that the Federal Reserve will pare the U.S. stimulus program that has driven demand for Mexico’s higher-yielding securities.

“Given the market’s low liquidity in prior days, the market had become afraid of a bad result” in the auction, Gerardo Welsh, a bond trader at Banco Base SA, wrote in an e-mailed response to questions. “The result and demand for the 2042 bond yesterday gave some peace to the market and today’s yield drop reflects that.”

Fed Chairman Ben S. Bernanke said May 22 that policy makers could consider reducing the pace of its quantitative easing, or QE, program if they see indications of sustainable improvement in the labor market. The Fed is buying $85 billion of Treasuries and mortgage securities each month to support the world’s largest economy.

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