Mexico bond prices rise as rates steady, peso firms
May 17th, 2008 | by admin |MEXICO CITY, May 16 (Reuters) - Mexican bond prices rose onFriday and the peso held onto early gains after the centralbank kept borrowing costs steady and investors pared bets thatpolicy-makers would raise interest rates in the coming months.
Long-term bond prices rose for the second day in a rowwhile the peso <MXN=> MEX01 was 0.46 percent stronger, neartwo-year highs, at 10.428 per dollar.
Stocks edged up, with the benchmark IPC index .MXX rising0.29 percent to 31,634 points.
The central bank held interest rates steady at its monthlypolicy review on Friday for a seventh straight month asconcerns about inflation pressures counterbalanced the risks tolocal economic growth from a possible U.S. recession.
Bond prices had dropped earlier this week after reportsthat prices of the corn flour tortilla, a Mexican staple, couldrise dramatically, spooking investors.
“The market was expecting a very hawkish statement, and thestatement was a little more balanced … so we are seeing a bitof a rally.” said David Franco, an fixed-income and currencystrategist at BBVA Bancomer in Mexico City.
The government’s benchmark 10-year peso bond <MX10YT=RR>rose 0.198 of a point in price to 98.124, pushing its yielddown 3 basis points to 8.03 percent.
Interest rate futures <0#TII:> showed market players scaledback bets that the central bank would raise rates in the comingmonths.
Franco said investors had overreacted to news of thepossible tortilla price increase. Still, he said it was clearthat increasing inflation pressures could force the centralbank to raise rates later this year, which would help furtherstrengthen the peso.
