According to a report last month by Reuters,2011 saw a record $31.65 billion in bond investments flowing into Mexico’s local currency debt instruments, the central bank announced. This is due in large part to global investors looking for a safe place to invest following Europe’s ongoing economic crisis.
Compared to 2010, the total amount invested in peso debt rose 37% when foreign investors contributed around $7.547 into the market during the last quarter of 2011. This is the most that has been invested since the first quarter of 2011, and so far 2012 is seeing the same trend emerge, even though concerns surrounding another global financial crisis have eased and the US Federal Reserve will likely keep interest rates at close to 0% until at least 2014.
“As this ‘risk-off’ mood from Europe ends, there will be a renewed search for yield,” stated Gabriel Casillas, who is an economist at JP Morgan in Mexico City.
The additional inflow of money is expected to further strengthen the peso, which rose to 11% recently after late 2011 saw it hit the lowest level in more than two years. The peso’s recovery has also helped to reduce fears surrounding that an increase in import prices could also cause inflation to rise.
With the increase in Mexico bond investment, the country’s central bank has accumulated exceptional international reserves, which will help it defend the peso should we experience another global financial crisis. In fact,Mexico added an impressive $28.6 billion to its international reserves in 2011, with numbers reaching $149.2 billion, according to the central bank.
“The recent rally in oil prices and improved global sentiment bode well for the strength of the external accounts through 2012,” said respected Goldman Sachs economist Alberto Ramos. “The balance of payments has been a clear source of macroeconomic strength for Latin America’s second-biggest economy and supported the peso.”