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Mexico Peso, Bonds Gain as Debt Eligible for Citigroup Index
 Ye Xie & Veronica Espinosa - Bloomberg
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April 01, 2010
Mexico’s peso advanced to a 17- month-high and local bonds gained as Citigroup Inc. said the country’s peso debt is eligible to be included in its World Government Bond Index, helping lure foreign investors.
The peso jumped as much as 0.6 percent today, extending a 5.9 percent rally that has made it the best performer among the 16 most-traded currencies in the world this year. The yield on the country’s benchmark peso bonds due in 2024 fell three basis points to a one-month low of 7.93 percent on speculation Citigroup’s move will prompt investors who use the index as a benchmark to buy Mexican securities.
“This adds to the positive sentiment to the peso,” said Flavia Cattan-Naslausky, an analyst with RBS Securities Inc. in Stamford, Connecticut.
The currency reached 12.2921 per dollar, the strongest level since October 2008, before ending the day little changed at 12.365, from 12.3683 yesterday.
The peso’s surge this year has been fueled by rising demand for its exports as the U.S. economy, Mexico’s biggest trade partner, recovers from a recession.
The yield on Mexico’s 10 percent peso bonds due in 2024 has declined 34 basis points, or 0.34 percentage point, from 8.27 percent on Dec. 31, according to Banco Santander SA. The price of the securities rose 0.33 centavo to 117.87 centavos per peso today, extending their advance this year to 3.05 centavos.
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Citigroup said Mexican peso debt will join its World Government Bond Index after the county meets the criteria for three straight months, becoming the first Latin American country in the index. The debt may enter by October, the New York-based bank said in a statement.
Mexico “satisfies all three World Government Bond Index requirements - size, credit and barriers to entry,” Citigroup said. The bank said that a preliminary “profile” suggests that 19 peso bonds with a market value of $100.5 billion would be included, giving the debt a projected market weight of 0.64 percent in the index.
The peso pared gains late in the day as the central bank sold $600 million of dollar options in a monthly auction that forms part of the country’s effort to boost foreign reserves.
The options, which allow the buyers to sell dollars to the central bank in exchange for pesos, will be settled on April 5, the bank said on its Web site. Bids totaled $2.83 billion, the bank said.
Banco de Mexico had $94.5 billion in foreign reserves on March 26, up from $72.6 billion in August.
To contact the reporters on this story: Ye Xie in New York at yxie6(at)bloomberg.net, Veronica Navarro Espinosa in New York at vespinosa(at)bloomberg.net
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