Mexican Government bonds experienced fall, pushing the yields to their highest level in the last 4 months. The speculation that the Federal Reserve will curtail the stimulus program diminished the prospects of this Latin American country. The yields on the Mexican Peso denominated benchmark debt which is due in December, 2024 experienced a rise of 6 basis points and the same is now at 5.19%. This is the highest level on a closing basis for the yields since 31st January. On the other hand, Mexican Peso declined by 0.7% as the same is now at 12.5615 per USD, paring the gain of this year to 2.3%.
The data released on this month showed that the economy of Mexico grew at the slowest speed on last quarter since it experienced recession in 2009. The speculation that the Federal Reserve will be reducing asset purchases was stoked after the reports coming out showed that the US consumer confidence increased to a 5-year high figure and the home prices increased. This fueled the demand for the higher yielding assets of the country.
According to the Money Manager of Aberdeen Asset Management, Kevin Daly, the reports coming out of US are spurring just more of the noise about the possibility of the Federal Reserve to start tapering sooner rather than later. Daly added that theoretically, stronger US macro should help the Mexican Peso, but that’ll lead to rise of the treasury yields of the largest economy in the world. This can, in future, have slightly negative impact on the Mexican bonds.
The yields on the US Treasury 10-year note increased to the highest level of the same on today since April, 2012. The bonds of Mexico, historically, are most related to the US Treasuries if compared with the other Latin American countries.
The foreign investors have been pouring money into the Mexican Peso bonds for profiting from the higher yields, as the interest rates in Japan and US are virtually at zero. The demand for Mexican Peso assets has declined since the indication of Ben S. Bernanke, the chairman of the Federal Reserve on last week that the pace of bond purchases may be cut by the policy makers in case sustained growth is experienced. The policy makers of the Banco de Mexico, cut rates in March for the 1st time since July, 2009.