Mexico’s Bonds Fall on Bets Core Inflation Quickened Last Month

………..For the Original Article Click Here

Mexico’s peso-denominated bonds fell for a second day on speculation a central bank report next week will show core inflation quickened last month, limiting further reductions in the nation’s lending rates.

Yields on Mexico’s benchmark security increased for a sixth week, gaining 1.5 percentage points since reaching a nine-month low on Jan. 22. Inflation excluding fresh food and energy items likely quickened to 0.46 percent in February from 0.43 percent in January, according to the median forecast of 13 economists surveyed by Bloomberg News.

“There’s concern there won’t be an improvement in core inflation,” said Salvador Orozco, head of fixed-income research at Banco Santander SA in Mexico City. “If there’s no improvement in core inflation then the bank won’t cut lending rates” at its next policy meeting on March 20, he said.

The yield on Mexico’s 10 percent bond due December 2024 rose two basis points, or 0.02 percentage point, to 9.07 percent at 5 p.m. in New York. The bond’s price fell 0.19 centavo to 107.75 centavos per peso, according to Santander.

The peso gained 1.3 percent to 15.1941 per U.S. dollar, compared with 15.3923 yesterday.

Mexico’s central bank last month slowed the pace of rate reductions from January as a drop in the peso to a record low threatened to fan inflation. Banco de Mexico cut its key rate by a quarter-percentage point to 7.5 percent in February after reducing its key rate by a half-point in January.

Policy makers will cut the benchmark interest rate to 7.25 percent this month, according to the median forecast of economists in a survey published by Citigroup Inc. yesterday.

Inflation Outlook

Headline inflation likely slowed last month because of President Felipe Calderon’s plan to freeze gasoline prices this year and lower heating gas costs, Orozco said. Inflation slowed to 0.22 percent from 0.23 percent in January, according to the Bloomberg survey. Annual headline inflation decelerated to 6.2 percent last month from 6.28 percent, the survey shows.

Mexico’s central bank is scheduled to publish its inflation report on March 9.

The peso rose 0.4 percent this week, its first weekly increase in four weeks. It fell to a record low of 15.5105 on March 2.