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Mexico's Peso Bonds and Currency Plunge After Ortiz's Comments
By Valerie Rota
Jan. 23 (Bloomberg) -- Mexico's 10-year bond and the peso plunged after comments by central bank governor GuillermoOrtiz fueled concerns policy makers may boost borrowing costs to stem inflation.
The yield on the benchmark bond rose to its highest in almost three months after Ortiz, in comments broadcast ontelevision late yesterday, said policymakers must remain ``vigilant'' to ensure inflation stays in check. His remarks came following soaring prices for tortillas, a Mexican dietary staple.
The comments``may be confirming that inflation is quickening,'' said Oliverio Perez, a currency trader at ABN Amro's unit in Mexico City. ``The bank may need to raise interest rates sometime in the first half of theyear.''
The yield on Mexico's 8 percent peso bond due in December 2015 rose 8 basis points, or 0.08 percentage point, to 7.97 percent, the highest since Oct. 30. The price fell 0.51 centavo to 100.18centavos at 11:02 a.m. in New York, according to Santander Central Hispano SA. Prices move inversely to yields.
To stem a rise in prices, the government last week said it reached an agreement withretailers to cap the price of tortillas at 8.5 pesos ($0.78) a kilogram. Tortilla prices had risen to about 11 pesos a kilogram in the first half of January from 6 pesos last year.
A report tomorrowmay show consumer prices during the first two weeks of the month rose the most in five years.
Prices likely rose 0.35 percent in the first half of January, the biggest rise for a similar period since2002, according to the median of 13 estimates in a Bloomberg survey. The central bank will release the inflation report tomorrow at 3:30 p.m. in New York.
``There is concern that the report couldcome in higher than the current consensus estimate,'' Perez said. ``This could spur additional increases in bond yields.''
Annual inflation was 4.05 percent in December, above the bank's target of...
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