Mexico Peso Posts Weekly Drop as Energy Plan Disappoints Traders

Mexico’s peso posted its biggest weekly drop since June, costing the currency its status as the world’s top performer this year, as the government’s plan to break the oil monopoly disappointed some investors.

The currency depreciated 2.3 percent this week to 12.9110 per U.S. dollar, the biggest one-week decline since the period ending June 21, after tumbling 0.7 percent today. This week’s decline left the peso down 0.4 percent this year.

Yields on peso-denominated bonds due in 2024, which rose yesterday as improving U.S. jobs data fueled speculation the Federal Reserve will pare back its bond buying program this year, have increased 42 basis points, or 0.42 percentage point, to 6.19 percent this week. Investors have also sold Mexico’s local-currency securities amid concern President Enrique Pena Nieto’s plan to open up the energy industry contains fewer incentives for private oil companies than some investors had anticipated.

“It was far less than the market was expecting,” Pedro Tuesta, a Latin America economist at 4cast Ltd., said in a telephone interview from Washington. “It is an improvement from the previous situation, but it could have been better. There are too many restrictions.”

Instead of offering ownership concessions, Pena Nieto opted for profit-sharing contracts, under which the oil would remain state property and drillers receive a cost reimbursement and pre-agreed share of the net income.

Yields on 2024 peso bonds rose seven basis points today. The weekly increase is the most since the period ended June 21 and pushed the yield to the highest since June 2012.

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