Mexico’s Inflation-Linked Bonds Rally Following Report on Prices

Mexican bonds linked to consumer prices rose to a two-month high after inflation topped some analyst estimates during the first half of the month.

Inflation-linked securities due in June 2016 climbed 0.14 centavo to 108.72 centavos per peso at 4 p.m. in Mexico City, the highest closing price since March 18. The yield fell eight basis points, or 0.08 percentage point, to 0.79 percent, according to data compiled by Bloomberg. Mexico’s currency gained 0.4 percent to 12.8788 per dollar, advancing for the first time three days.

Mexican consumer prices dropped in early May by the most in two years, falling 0.37 percent in the first two weeks of the month, the national statistics agency said, compared with a 0.38 percent decrease forecast by 19 analysts surveyed by Bloomberg.

The central bank said yesterday that inflation may climb above the 4 percent upper end of the central bank’s target range for some months in the second half of the year before slowing to end 2014 below 4 percent. It should slow to just above 3 percent early in 2015, the bank said.

“There could be a bit of inflation in the pipeline,” Roberto Ivan Garcia Castellanos, a trader at Casa de Bolsa Finamex, said in an e-mailed response to questions. Investors “may be starting to discount it.”

Policy makers have kept its target lending rate at a record low 3.5 percent this year and pared its 2014 growth forecast, citing economic weakness in the first quarter. Gross domestic product will rise 2.3 percent to 3.3 percent this year, down from the previous forecast of 3 percent to 4 percent, the central bank said in its quarterly inflation report yesterday.

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