Bond Strategists: Julius Baer’s Owens Says Sell Mexico on Rally
Investors should sell Mexican government bonds because their prices already reflect chances the central bank will cut interest rates twice more this year, said Adrian Owens, a director of fixed income at Bank Julius Baer.
“The inflation outlook for Mexico is encouraging and the central bank will continue to cut interest rates, but most of that good news is already priced into the market,'’ Owens, who co- manages the firm’s $157 million Global Rates hedge fund, said in a Sept. 29 interview. “The best bet is to trim your Mexican bond positions.'’
Mexican bonds denominated in pesos on Sept. 30 posted their biggest six-month rally in more than a year as slowing inflation prompted policy makers to lower interest rates. Inflation last month slowed to 3.95 percent, a record low, and is on pace to reach the central bank’s 3 percent target next year for the first time, Finance Minister Francisco Gil Diaz said Sept. 23.
The yield on Mexico’s 10-year government bond closed at 8.63 percent on Sept. 30 in Mexico City, down from 9.83 percent at the start of the year. It reached 8.49 percent on Sept. 21, the lowest since February 2004. Bond yields move inversely to prices.
The fund that Owens manages with Andrew Snowball was the third-best performing European fixed-income hedge fund in July, according to data compiled by Bloomberg, handing investors a 6 percent return. It has returned 16 percent so far this year.
9 Percent
Yields may rise as high as 9 percent in the next six months, Owens predicts, as investors reduce bets on further gains. Sentiment on Mexican bonds may also be hurt before the country’s major political parties choose candidates for presidential elections scheduled for July, Owens said.
Mexico suffered peso devaluations in four of the past five presidential elections, a pattern only broken with the December 2000 victory of Vicente Fox. Mexico’s two largest parties, Fox’s National Action Party and the opposition Institutional Revolutionary Party, or PRI, plan to hold internal votes in the coming two months to pick presidential candidates.
“In the longer term yields may will continue to go lower, but there are a few risks and a lot of the good news has been absorbed,'’ said Owens. “If yields do get back to 9 percent there would be significant interest from investors, including ourselves.'’
More: quote.bloomberg.com
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The Gulf of California is a body of water that separates the Baja California Peninsula from the northern Mexican mainland.
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Brazil, Chile, Mexico, Peru: Latin America Local Bond Preview
The following events and economic reports may influence trading in Latin American local-currency bonds today. Bond yields are from the previous session.
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The yield on Argentina's 5.83 percent bond maturing in 2033 remained unchanged at 6.19 percent, according to Banco Mariva in Buenos Aires. {ARARGE03E121 DES }.
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The market's key IPC index rose 234.99 points, or 1.7 percent, to 14,243.19. Volume totaled 153.8 million shares worth 3.18 billion pesos.
The index closed just above the key 14,000 mark on Tuesday, its lowest level since mid-July, in a sell-off of more than 300 points.
Homebuilder Homex was the top performer in Wednesday's session, with its shares jumping 9.9 percent to 53.81 pesos.
Others included Consorcio Hogar, whose B shares finished up 6.4 percent to 3.14 pesos, Urbi
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Emerging market debt prices rallied on Friday, boosted by U.S. Treasuries and led by Mexico, where the government announced its second step this week to reduce its outstanding foreign debt.
Mexican external bonds, which usually move in relatively narrow ranges compared with other major EM credits, roared higher. The benchmark global bond due in 203, jumped 2.500 points to bid 124.50 and the global 2019 rose 4.250 to bid 123.750.
Analysts said the surge was driven by the view that debt will become more valuable as it dwindles in supply.
"It was a Mexico colored day," said
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In Sao Paulo, the Bovespa rose 174 points, or 0.5%, to close at 34,972.74.
Brazilian shares lost ground earlier in the session, reacting negatively to a sell-off in the currency, said Ricardo Amorim, head of Latin American strategy at WestLB.
The real hit 2.2377 against the U.S. earlier in the day, its lowest level since June 28,
Mexico, Argentina, Venezuela: Latin America Local Bond Preview
The following events and economic reports may influence trading in Latin American local-currency bonds today. Bond yields are from the previous session.
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``We still
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The yield on fixed-rate bonds may rise as much as 30 basis points, or 0.3 percentage point, as higher-than-expected consumer price increases drive down already ``tight'' valuations, Moreno said. The annual inflation rate may climb as high as 3.9 percent in January, more than the 3.5 percent expected by many fund managers, he said.
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Mexico, Venezuela, Chile: Latin America Local Bond Preview
The following events and economic reports may influence trading in Latin American local-currency bonds today. Bond yields are from the previous session.
The central bank raised its growth forecast for the economy next year to 6.2 percent from 4 percent on Dec. 29. The central bank will rebuild international reserves to a level comparable to the total available before Argentina's $9.8 billion payment to the International Monetary Fund, bank president Martin Redrado said.
The yield on Argentina's 5.83 percent bond maturing in December 2033 fell 2 basis points to 6.31 percent on Dec. 29,
