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 Business News | July 2007 
Mexico Peso, Local Bonds Advance as Risky Asset Concerns Recede
 Valerie Rota - Bloomberg
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Mexico's peso rose the most in six weeks as higher prices for global stocks helped assuage concerns that investors will avoid riskier emerging-market securities.
Mexico's 10-year peso bonds also surged, coming off their biggest weekly retreat since the week ended June 8, on expectations slowing inflation in Mexico will allow central bankers to hold off from raising borrowing costs this year. Yields on the benchmark bond rose 12 basis points last week on speculation the rout in subprime mortgages in the U.S. would spread to other assets.
"Mexico still looks quite good even amid the subprime concerns," said Alejandro Hernandez, who manages $930 million in fixed-income assets at brokerage Grupo Financiero Interacciones in Mexico City. "We aren't seeing immediate risks in Mexico that could detonate higher bond yields" or a weaker peso, he said.
The peso rose 0.8 percent to 10.9233 per dollar at 4:56 p.m. New York time and earlier gained as much as 0.9 percent, the most since June 15. Today's advance followed a 2 percent decline last week, the biggest since April 2006. Mexico's currency has dropped 1 percent this month.
The Standard & Poor's 500 Index rose today following its biggest weekly decline since September 2002, while the Dow Jones Industrial Average advanced after its steepest drop since March 2003.
Peso Bonds
"Gains in local assets today are in line with the recovery in international financial markets," said Salvador Orozco, head of fixed-income research at Mexico City-based Santander Central Hispano SA, the country's biggest trader of peso-denominated bonds.
Yields on Mexico's 7.25 percent peso-denominated bond due December 2016 fell 5 basis points, or 0.05 percentage point, to 7.72 percent. The price, which moves inversely to the yield, rose 0.33 centavo to 96.84 centavos, according to Santander.
The spread, or yield differential, between Mexico's 10-year bond and a similar-maturity U.S. Treasury narrowed 5 basis points to 2.94 percentage points.
Policy makers at Banco de Mexico voted on July 27 to leave the benchmark lending rate at 7.25 percent and said they expect inflation will slow to the bank's 3 percent target by the end of next year.
To contact the reporter on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net. |
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