Mexico’s Bonds Rally as U.S. Shutdown Fuels Fed Bets; Peso Drops

Mexico’s bonds rallied as a partial shutdown of the U.S. government fueled speculation the Federal Reserve will maintain the pace of monetary stimulus that has boosted demand for the Latin American country’s securities.

Yields on Mexico’s benchmark peso bonds due in 2024 fell three basis points, or 0.03 percentage point, to 6.05 percent at 4 p.m. in Mexico City, according to data compiled by Bloomberg. The currency weakened 0.5 percent to 13.1549 per U.S. dollar, pushing its loss this year to 2.3 percent.

The Fed’s $85 billion in monthly bond purchases have spurred demand for higher-yielding, emerging-market assets, driving foreign holdings of Mexico government fixed-rate bonds to a record in May. Yields on the benchmark debt have fallen eight basis points since the Fed surprised analysts and refrained from paring the pace of its stimulus on Sept. 18.

“This motivation for the Fed to continue buying back bonds and injecting liquidity into the markets is what’s driving emerging markets today,” Gerardo Welsh, the head of money markets at Banco Base SA, said in a phone interview from San Pedro Garza Garcia, Mexico. “Given this liquidity, the market’s coming back to look where to put money, and they’re finding Mexican bonds to be a good asset.”

The U.S. Congress’s failure to pass a budget closed the government for the first time in 17 years, setting the stage for a debate on raising the U.S. debt ceiling within three weeks. The partial shutdown will put as many as 800,000 federal employees out of work today, halting some government services after Congress failed to break a partisan deadlock. Mexico sends about 80 percent of its exports to its northern neighbor.

Growth Outlook

Analysts polled by Mexico’s central bank cut their projections for growth this year to 1.43 percent from 1.78 percent previously, according to the average estimate of economists in a survey published today.

Mexico’s Finance Ministry sold 6 billion pesos ($455 million) of one-month notes known as Cetes at auction today, according to the central bank. The government also auctioned off 9.5 billion pesos in three-month notes and 10.5 billion pesos of notes maturing in six months. It also sold all 4 billion pesos of fixed-rate debt due in 2031 it offered.

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