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 Business News | December 2007 
Mexico's Peso Heads for Yearly Decline on U.S. Subprime Losses
 Valerie Rota - Bloomberg
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Mexico's peso headed for a second straight yearly decline as losses in bonds backed by U.S. subprime home loans led investors to shun higher-yielding securities.
The peso has fallen 0.9 percent this year, the second-worst performance after Argentina's peso among the six most-traded Latin American currencies. The peso slid 1.6 percent in 2006. It fell for a fourth day today, dropping 0.1 percent to 10.9159 per dollar at 11:53 a.m. New York time.
"This was a very volatile year with a difficult backdrop and I'd expect this volatility to continue into next year," said Eduardo Perez, who oversees about $5 billion in assets at Grupo Nacional Provincial SA, Mexico's biggest insurance company. "Investors are going to be even more cautious in 2008."
Defaults on bonds backed by U.S. subprime mortgages triggered $80 billion in writedowns and losses at the biggest banks and securities firms this year. Those losses prompted analysts to forecast the U.S. economy, the biggest buyer of Mexican exports, will slow next year.
Mexican local-currency bonds also headed for a yearly decline on concern new taxes and rising global food prices will fan inflation. Quickening inflation erodes the value of a bond's fixed payments.
Yields on Mexico's benchmark 10 percent bonds due in 2024 have risen 67 basis points, or 0.67 percentage point, to 8.21 percent this year after falling 1.02 percentage points during 2006. Central bankers have said they won't meet their 3 percent inflation goal until 2009 and expect the inflation rate to rise to as high as 4.5 percent next year from 3.9 percent in November.
Debt Auction
The yield on the bonds due 2024, Mexico's most-traded securities, rose 0.5 basis point today. The price fell 0.05 centavo to 116.32 centavos per peso, according to Banco Santander SA.
Mexico plans to sell today 4.65 billion pesos ($426 million) of its bonds due in June 2027 at an auction. The government may sell the bond to yield 8.25 percent, the most since September last year, based on today's secondary market prices. Mexico also plans to raise about 1.57 billion pesos in a sale of 20-year inflation-linked bonds and 15.9 billion pesos in an auction of Treasury bills.
The central bank is scheduled to post the auction results at 2:30 p.m. New York time.
Markets in Brazil, Colombia, Peru, Argentina, Chile and Venezuela are closed today for a holiday.
Brazil's real rose this year the most among Latin American Currencies, bolstered by the country's fastest economic growth in three years. The real jumped 20 percent to 1.779 per dollar, its fifth straight annual advance.
Currencies in Colombia, Peru and Chile also rose amid a rally in commodity prices. The Colombian peso advanced 11 percent, the Chilean peso gained 7.1 percent, while the Peruvian sol rose 6.6 percent.
Argentina's peso, the worst performer, slid 2.8 percent.
To contact the reporter on this story: Valerie Rota in Mexico City at vrota1(at)bloomberg.net. |
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