Mexico’s CPI-Linked Bonds Fall Amid Bets Inflation Under Control

Mexico’s inflation-linked bonds fell as central bank Governor Agustin Carstens said he expects price increases to slow to target by year end.

The price drop pushed up yields on inflation-linked securities due in June 2016 by two basis points, or 0.02 percentage point, to 1 percent today in Mexico City, according to data compiled by Bloomberg. It’s the highest closing level since July 29. The peso slipped 0.3 percent to 13.3242 per dollar at 4 p.m. local time, the biggest loss among major Latin American currencies after Brazil’s real.

Central bank Governor Agustin Carstens told reporters today in Mexico City that inflation is under control and remains in line with policy makers’ expectations. Demand for the securities, known as Udibonos, has been declining since the national statistics agency said consumer prices climbed 0.89 percent in January from the previous month, compared with the 0.97 percent median forecast of analysts surveyed by Bloomberg.

“They’re calming the market in the sense that while we could see some volatility with inflation this year, in general it’s nothing that would push Banco de Mexico to raise rates,” Rafael Camarena, an economist at Grupo Financiero Santander Mexico SAB in Mexico City, said in a phone interview. “They’re also saying that in 2015 we could see a significant drop in inflation.”

Inflation rates will be higher than the upper limit of the 2 percent to 4 percent target in some months of the second half of this year, easing to a level “slightly” higher than 3 percent in 2015, the central bank said.

Before it's here, it's on the Bloomberg Terminal.