Mexico Credit Status: Bonds Fueled by Slowing Inflation

June 27 (Bloomberg) -- Mexican bonds are posting their biggest gain in 10 months.

Due to speculation that slowing inflation will prompt the central bank to keep interest rates at a record low, the yield on government bonds dropped 22 basis points since June 17, for notes due in 2020.

In comparison to other leading Latin American economies, yields on Brazil's real-denominated bonds climbed 0.09 percentage points (nine basis points) to 12.41%, during the same time period for bonds maturing in 2021.

"The fundamental story of inflation is just very positive," Alberto Bernal, head of fixed income research for Miami-based Bulltick Capital Markets, said in a telephone interview. "We've been very vocal about being long in the long end, and so far so good."

Alejandro Padilla, a debt strategist at Grupo Financiero Banorte-Ixe in Mexico City, said in a telephone interview, "There's a positive effect from the exchange rate. Their inflation reports keep showing signs that there aren't inflationary pressures on the side of internal demand. We don't see any factors that could push the Mexican central bank to move up its tightening cycle."

Alejandro Padilla said his recommendation to investors would be to buy Mexico peso bonds maturing in 2013 and 2015.

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