Mexico’s Benchmark Bonds Decline After FOMC Meeting; Peso Gains

Mexico’s benchmark bonds dropped, pushing yields to a two-week high, as investors bet the Federal Reserve will raise interest rates sooner than they had expected.

Fixed-rate securities due in 2024 fell 0.78 centavo to 128.41 centavos per peso at today. Yields rose eight basis points, or 0.08 percentage point, to 6.34 percent. The peso appreciated 0.2 percent to 13.2599 per dollar.

Most Federal Open Market Committee participants predicted the target lending rate will climb to 1 percent at the end of 2015 and 2.25 percent a year later, from the current level of almost zero. Fed Chair Janet Yellen said the first increase may come six months after the end of monthly bond purchasing. Investors have poured into Mexican securities in recent years to take advantage of higher yields.

The Fed reduced the monthly pace of bond purchases by $10 billion to $55 billion. The Fed announced on Dec. 18 its first reduction in bond purchases to $75 billion from $85 billion, then followed up with a cut of the same amount in January to $65 billion.

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