March 9 (Bloomberg) -- Investors should buy Mexico’s peso and government bonds should their values decline, RBS Securities
Inc. said.
“Everyone is still seeking yield,” wrote Siobhan Morden, a Latin American debt strategist with RBS Securities in Stamford,
Connecticut, in a note today. “Our in-house view suggests a buy-on-dips strategy across Mexican assets. The long end of
rates benefit from relative higher yield, while the peso benefits from still cheap valuation.”
The peso rose 0.5 percent to 12.6208 per dollar, from 12.6808 yesterday, when it reached 12.6024, the strongest level
since Jan. 11. The currency has gained 3.7 percent this year, the second-best performance among 26 emerging-market
currencies tracked by Bloomberg, behind Colombia’s peso.
No dollar options were exercised today, the Mexican central bank said on its Web site.
A total of $344 million of options, or 57 percent of the $600 million contracts the central bank sold last month, have
been triggered, central bank data show. By exercising the options, the holders sell the central bank dollars for the peso,
allowing the bank to build up its foreign reserves.
The yield on Mexico’s 10 percent peso bond due in 2024 rose three basis points, or 0.03 percentage point, to 7.98 percent,
according to Banco Santander SA. The price of the security fell 0.24 centavo to 117.48 centavos per peso. The price has
increased from 114.78 centavos at the end of last year.
“Our local office still sees flows on the long end of the curve,” Morden wrote.
The short term themes remain intact with the mixed bias for the USD. Still, we continue to see some developments worth noting.
The action in GBP still reflects a bearish bias with today’s underperformance implying additional weakness is likely. The decline
in Cable from this week’s high suggests a growing risk of new lows particularly given the corrective nature of the rally from last
week’s lows. The action in the crosses reflects this view as well with the rise in EUR/GBP and decline in GBP/CHF suggesting a
growing risk that the underlying trends are back on track. We continue to hold these positions. JPY is the other main
underperformer today with the lift in USD/JPY and the crosses implying additional upside. The focus remains on last week’s
breakout levels and so far USD/JPY and the Commodity FX/JPY have held these key pivots. In turn, we sense additional upside is
likely to develop. Note that AUD/JPY is extending above the key 82.82 late-February high which is in line with this view.
Importantly, NZD/JPY faces a critical test at the 64.55/64.70 February range highs while CAD/JPY needs a break through the
88.46 February peak to sustain the next leg up. The bias for CAD remains bullish, but these levels as well as the 1.0205/35
medium term range lows against the USD suggest some initial pause. Still, we will be looking for near term retracements to get
into this trade as the odds for an extension and breakout are growing particularly for USD/CAD given the maturity of the overall
range bias. The range view remains firmly intact for the European currencies, as we continue to monitor key near term levels for
signs that the underlying trends are resuming. Note the 1.3530 area is key for EUR/USD and will define a retest, if not break of
the lows. For the Latams, USD/MXN is pushing against the critical 12.60/12.75 support zone which should define a retest of the
December low. Similarly, USD/BRL faces an important test at the 1.76/1.75 zone as this area will now define a retest of the broad
range lows. Near term corrective retracments are viewed as opportunities to establish short positions.
