Foreigners Snub Peso Slump to Boost Purchases of Mexican Bonds

  • Net inflows increase to highest level in three months
  • About $1.5 billion of bond buying not enough to buoy peso

Foreign investors are piling into Mexico’s local bonds even with the peso leading losses among the world’s major currencies.

Net purchases by international investors, who hold about 60 percent of Mexico’s sovereign debt issued domestically, surged to 28 billion pesos ($1.5 billion) in the first two weeks of the year, according to data compiled by Mexico’s central bank. That’s the highest amount in three months.

“Overseas investors are flocking to a regional haven that boasts on-target inflation, steady growth and relatively sound government finances,” Bloomberg currency strategist George Lei wrote in an article for Bloomberg Brief published Wednesday.

Foreign inflows into Mexican bonds have climbed after inflation slowed to the lowest level since 1968 and growth accelerated, defying a slump in the peso and surging consumer prices elsewhere in Latin America. Still, international purchases haven’t been enough to stem the decline in the currency, which slipped to a record 18.8024 per dollar on Jan. 21. The peso is acting as a “shock absorber” against swings in global asset prices and could help boost exports to the U.S., according to Lei. The U.S. is Mexico’s top trading partner.

Mexican government bonds have returned 0.7 percent this year in local-currency terms, compared to a 1.4 percent average loss on emerging-market local government bonds. The peso rose 0.3 percent to 18.4114 per dollar as of 12:13 p.m. in Mexico City.

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