Mexico's Peso Trades Near Highest in More Than Week on Rates

By Valerie Rota

Aug. 20 (Bloomberg) -- Mexico's peso traded near the strongest in more than a week on speculation the biggest gap in three years between Mexican and U.S. benchmark lending rates will hold through year-end.

The peso traded at 10.1290 per dollar at 10:46 a.m. New York time, compared with 10.1325 yesterday. It touched 10.1128, the strongest since Aug. 8.

The currency has risen 7.6 percent this year as three interest-rate increases by Banco de Mexico have swelled the yield differential between the Mexican and U.S. benchmark rates to 6.25 percentage points, the widest since 2005, luring investment to the nation's securities.

Interest-rate futures show traders see a 77 percent chance the Federal Reserve will keep the 2 percent target rate for overnight lending between banks unchanged through December, compared with 21 percent odds a month ago.

Banco de Mexico will maintain borrowing costs at 8.25 percent through the end of the year, according to the median forecast of 21 analysts in a survey published by Citigroup Inc.'s Banamex unit this week.

Yields on Mexico's 10 percent bond due in December 2024 fell less than 1 basis point, or 0.01 percentage point, to 8.63 percent. The bond's price rose 0.04 centavo to 111.92 centavos per peso, according to Banco Santander SA.

To contact the reporter on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net