September 10, 2008

Mexican Peso Bond Yields Rise to OneWeek High on Inflation

Mexican Peso Bond Yields Rise to One-Week High on Inflation

By Valerie Rota

"Sept. 9 (Bloomberg) -- Mexico's bonds fell, pushing yields on the benchmark security to a one-week high, after the central bank said inflation quickened more than forecast in August."

"The government's bond due in December 2024 dropped for a second day after Banco de Mexico said consumer prices increased 5.57 percent in August from a year earlier, more than the 5.5 percent median forecast of 18 economists surveyed by Bloomberg News. It was the fourth consecutive month inflation accelerated more than expected."

"``It's concerning that the bank keeps reporting inflation above expectations,'' said Rafael Camarena, an economist in Mexico City at Banco Santander SA, the biggest trader of Mexican peso-denominated bonds."

"Yields on Mexico's 10 percent bond due in December 2024 increased 4 basis points, or 0.04 percentage point, to 8.51 percent at 5 p.m. New York time. The bond's price fell 0.41 centavo to 113.05 centavos per peso, according to Santander."

"Camarena said Mexico's central bank may raise its benchmark lending rate in the fourth quarter to 8.5 percent, the highest since 2005, to curb inflation. It would be the fourth increase in the bank's target rate this year. Banco de Mexico last raised borrowing costs in August, by a quarter-percentage point to 8.25 percent. Policy makers next meet Sept. 19."

Consumer Prices

"Monthly inflation was 0.58 percent, up from 0.56 in July, the bank said today. Core inflation, which excludes fresh food and energy items, accelerated to 0.43 percent last month from 0.40 percent in July."

Bonds also fell after Finance Minister Agustin Carstens said Mexico plans to reduce the subsidy on the price of gasoline sold by state-owned oil company Petroleos Mexicanos on a weekly basis until prices reach international market rates in 2010. Carstens spoke in an interview on Televisa television.

"Mexico's fixed-rate bonds may decline further in the coming months, tracking U.S. Treasuries, should the U.S. government increase debt sales to finance the bailout of mortgage-finance companies Fannie Mae and Freddie Mac, said Christian de Lima Aymes, a Monterrey, Mexico-based bond trader at Vector Casa de Bolsa SA."

"Government bonds are coming off their best monthly performance in three years as demand for the country's securities from foreigners, lured by the widest rate gap in three years between Mexican and U.S. bonds, pushed down yields on the benchmark security by 59 basis points in August."

"Foreign investors boosted their holdings of Mexican peso- denominated bonds to a record 291 billion pesos ($28 billion) as of Aug. 29, central bank data showed today."

"The peso fell 0.6 percent to 10.5639 per dollar, from 10.4986 yesterday. The peso has fallen 5.3 percent since the end of July as the dollar rallied against most of the world's major currencies. De Lima Aymes said he expects the peso to weaken to 10.7 per dollar by the end of this year."

To contact the reporter on this story: Valerie Rota in Mexico City at

"Last Updated: September 9, 2008 17:41 EDT"

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