Mexico Bond Link to Treasuries Rises as Peso Slips on U.S. Rates

The correlation between Mexican peso bonds and U.S. Treasuries is rising to a two-month high as an improving U.S. labor outlook fuels speculation the Federal Reserve will raise interest rates next year.

The 30-day correlation coefficient between 10-year Mexican government bonds and similar-maturity Treasuries increased to 0.42 today, the highest on a closing level since Jan. 27. A reading of 1 means the two securities trade in lockstep while -1 indicates a move in opposite directions. The peso slipped 0.3 percent to 13.0893 per dollar today in Mexico City.

Peso bonds, which rallied to record levels last year amid unprecedented monetary stimulus from the Federal Reserve, are falling with Treasuries today after a report showed companies in the U.S. added 191,000 jobs in March and a revised 178,000 positions in February, which was more than the prior estimate. Fed Chair Janet Yellen said last month the central bank may end the bond-buying program it uses to support the economy later this year and increase borrowing costs six months after that.

The U.S. data “is confirming that the Fed is going to start hiking rates as early as the market was expecting,” Pedro Tuesta, a senior economist for Latin America at 4cast Ltd., said by phone from Washington. “Right now it’s just keeping up along with the Treasury bond increase.”

Yields on 10-year U.S. Treasuries rose five basis points, or 0.05 percentage point, to 2.8 percent today. Yields on similar-maturity Mexican peso bonds rose six basis points to 6.28 percent, according to data compiled by Bloomberg.

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