Mexican Peso Bonds Gain, Yields Go to Record Low

The bonds of the Mexican Peso gained, thereby sending the yields to a record low figure. The Fitch rating upgraded Mexico to one place higher and apart from that, the Grupo Financiero Banorte SAB projected that the key rate will be reduced by the Central Bank in next July. The yields on the Mexican Peso bonds which are due in December experienced a decline of 5 basis points and these are currently at 3.74%. On the other hand, the yields on the 6-month swaps tied to the interbank rate went down by 5 basis points and it is currently at 4.16%. Many economists speculate that the traders are now pricing in about a 72% chance that the policy makers will be reducing the rates in the next 6 months. Apart from all these, the yields on the benchmark bonds which are due in 2024 went down to record low figures as well.

Fitch decided to boost the credit rating of Mexico by one level and it is currently at BBB+. This is the 3rd lowest investment grade. The President of Mexico, Enrique Pena Nieto is currently on a process of rewriting the laws for luring investments and thereby bolstering the overall growth. As far as a research report that came out from Banorte analysts, at the July meeting, the benchmark rate will be cut by 0.5 percentage point by the Central Bank to 3.5%. The list of analysts who gave their inputs for the report included Gabriel Casillas. On the other hand, the inflation of Mexico jumped up to 4.65% in April, from value of 4.25% in March. The inflation is however less than the 4.67% forecasted by the economists.

According to a Banorte Strategist, Alejandro Padilla, the bond rally was mainly influenced by the upgrade that the Fitch carried out. Padilla added further that the quarterly report released by the Central Bank was extremely dovish, thereby helping his bank to project a possible rate cut in future.

On today, Mexican Peso was more or less unchanged against USD as it is currently priced at 11.9817 per USD. Incidentally, only on yesterday, it reached the strongest level since August, 2011. As far as statistics are concerned, Mexican Peso has been able to post gains of 7.3% in 2013, which is the most among all the major counterparts of the USD.