May 15th, 2008
Mexicos Benchmark Bond Yield Climbs To Highest In Four Months
Mexico’s peso-denominated bonds were little changed, with the yield on the benchmark security close to a four-month high, on speculation quickening inflation will prompt central bankers to raise lending rates this year.
Yields on benchmark bonds have climbed 0.10 percentage point since Banco de Mexico raised its inflation forecast for this year on April 30, citing higher commodity prices. Inflation may accelerate to as high as 5 percent this year, up from a prior forecast of as much as 4.5 percent, the central bank said last month.
There is concern “that Banco de Mexico will be forced to raise its benchmark rate,” said Miguel Gaytan, a fixed-income analyst at Bursametrica SA in Mexico City. “There is also concern that the inflation rate may rise above 5 percent” in coming months.
The yield on the government’s 10 percent bonds due in December 2024, the country’s most actively traded security, held at about 8.09 percent, its highest since Jan. 16. The bond’s price rose 0.05 centavo to 117.38 centavos per peso at 5 p.m. New York time, according to Banco Santander SA.
At a local debt sale today, Mexico sold its three-year bonds to yield 7.86 percent, the highest since November, compared with 7.46 percent at the prior sale last month.
Annual inflation jumped to 4.55 percent in April from 4.25 percent the prior month, the central bank said last week. Banco de Mexico targets inflation of 3 percent.
Central bankers will keep the benchmark lending rate at 7.5 percent for a seventh straight meeting when they meet on May 16, according to all 19 economists surveyed by Bloomberg News.
October Rate Increase
Banco de Mexico last raised borrowing costs by a quarter- percentage point in October. That increase, along with seven rate reductions by the U.S. Federal Reserve since September, has increased the spread between the two benchmark rates to 5.5 percentage points, the widest since October 2005. The Fed’s target lending rate is 2 percent.
Mexico’s peso, which has risen 3.8 percent this year, will keep strengthening should the yield differential between the two benchmark lending rates widen further, Gaytan said.
Tags: banco de mexico, Bank, benchmark, Benchmark Lending, benchmark rate, benchmark rates, bloomberg news, bonds, bursametrica, centavo, centavos, commodity prices, differential, economist, economists, federal reserve, fixed income, gaytan, inflation, inflation rate, mexico city, new york time, percentage point, rate increase, rate reductions, speculation, target