Mexico’s Bonds Drop as U.S. Job Growth Erodes Demand; Peso Slips

Mexico’s benchmark bonds fell, pushing yields up for the first time in four days, after better-than-expected jobs data in the U.S. fueled speculation the Federal Reserve will keep reducing monetary stimulus.

Yields on peso bonds maturing in 2024 rose four basis point, or 0.04 percentage point, to 6.32 percent, according to data compiled by Bloomberg. Mexico’s peso depreciated 0.3 percent to 13.1872 per dollar at 4 p.m. in Mexico City, paring its advance this week to 0.5 percent.

Peso bonds followed yields on U.S. Treasuries higher today after the U.S. Labor Department said employers added 175,000 jobs in February, compared with a 149,000 advance projected in a survey by Bloomberg. The Fed said Jan. 29 that it would trim monthly asset purchases by $10 billion to $65 billion, sticking with a plan for gradual withdrawal of stimulus.

The U.S. employment report was “certainly above the expectations that people had,” Alejandro Urbina, a portfolio manager at Chicago-based Silva Capital Management LLC who helps manage $800 million, said in a phone interview. “That just goes into the bucket of data that would tell you that the Fed is not about to ease up on the speed of tapering.”

In Mexico, inflation remained above the target range for a second consecutive month after higher gasoline prices and new taxes on products including soft drinks and junk food took effect. Urbina said the inflation report contributed to the bonds’ decline today.

Consumer Prices

The national statistics agency said today that consumer prices climbed 0.25 percent in February from the previous month, compared with the 0.23 percent median forecast of 24 analysts surveyed by Bloomberg. Annual inflation slowed to 4.23 percent from 4.48 percent in January, still above the 4 percent upper limit of the central bank’s target range.

“It’s a hot number,” Urbina said. “That also doesn’t bode well for interest rates.”

Nomura Holdings Inc. strategists Benito Berber and Tony Volpon said in a note to clients today that they recommend buying the peso and selling the Brazilian real, citing Mexican constitutional changes to open the energy sector to more private investment.

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