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EMERGING MARKETS-Mexican peso leads losses as high bond yields ravage Latam assets

Sruthi Shankar and Ambar Warrick
·3-min read

* Mexican peso set for worst day in five months * Brazil's real falls despite positive budget data * Chilean peso set to snap 9-day winning streak (Adds details, updates prices) By Sruthi Shankar and Ambar Warrick Feb 25 (Reuters) - Mexico's peso plummeted to a near four-month low on Thursday, leading losses across Latin American currencies as a rise in bond yields and inflation expectations hit risk-driven assets across the globe. The peso tumbled as much as 3.3%, eyeing its worst day in five months, with domestic investors also cautious after Mexico's lower house of Congress approved a controversial bill aimed at increasing state control of the electricity market earlier this week. The currency weakened even as official numbers showed Mexico's economy grew quicker than first estimated during the fourth quarter as the country recovered from its sharpest economic contraction in nearly nine decades. The peso has also been hurt by power disruptions in the country due to a deep freeze in the neighboring state of Texas, while relatively high Mexican interest rates have made the currency more vulnerable to changes in global borrowing costs. "The rise in U.S. rates is unlikely to be behind us and real rates are moving, too. This puts EMFX more at risk, with a focus on bond sensitive currencies like MXN," analysts at U.S. bank Citi said in a note. Despite the dollar falling against its major peers, Brazil's real, Colombia's peso, the Chilean peso and the Argentine peso all recorded large declines. The U.S. 10-year Treasury yield, a benchmark for global borrowing costs, rose above 1.45% to its highest level in a year as investors bet that COVID-19 vaccination programs and more U.S. fiscal stimulus will spur a quicker economic recovery and faster price rises. Chile's peso slipped from six-week highs, snapping a nine-session winning streak. Strength in the copper market had kept the currency ahead of its regional peers in recent sessions. Brazil's real dropped 1.5% despite the government posting its second highest January budget surplus on record. Latam stocks and currencies in the region had gained in the past two sessions after U.S. Federal Reserve Chair Jerome Powell calmed fears over an immediate tapering of monetary policy. But his comments did little to stem the rise in treasury yields. MSCI's index of Latin American stocks slipped on Thursday, tracking large losses on Wall Street. Brazil's Bovespa index dropped 2.3%, while other stock markets, including Mexico's IPC, Argentina's Merval and Chile's S&P IPSA also retreated. Latam assets have been more vulnerable to swings in global sentiment than their emerging market peers, due to concerns over regional economic strength, as well as a rocky COVID-19 vaccine rollout. Key Latin American stock indexes and currencies: Latest Daily % change MSCI Emerging Markets 1384.62 0.57 MSCI LatAm 2288.76 -2.74 Brazil Bovespa 112977.63 -2.33 Mexico IPC 44728.20 -0.94 Chile IPSA 4574.60 -0.04 Argentina MerVal 48975.89 -1.272 Colombia COLCAP 1347.44 -1.7 Currencies Latest Daily % change Brazil real 5.5040 -1.50 Mexico peso 20.7690 -1.97 Chile peso 716.4 -2.23 Colombia peso 3607.95 -1.26 Peru sol 3.6478 -0.11 Argentina peso 89.7500 -0.08 (interbank) (Reporting by Sruthi Shankar in Bengaluru; editing by Jonathan Oatis, Kirsten Donovan)