Mexico moves as peso near 6-yr low, hedges add to pain
(Adds fund manager comment, updates prices) By Michael O'Boyle MEXICO CITY, Dec 11 (Reuters) - The Mexican peso slumped to its lowest level in nearly six years on Thursday, triggering central bank intervention, and analysts expect even deeper losses as foreign investors hedge record holdings of local currency debt.
The peso is down more than 4 percent since Dec. 4, its worst six-session run in 1-1/2 years. On Thursday, it shed 1.4 percent to 14.7775 per U.S. dollar and triggered the central bank to sell $200 million at auction.
Global markets have been sent into a tailspin after a sharp drop in oil prices prompted the selling of riskier assets near the year end.
Mexico is a top oil exporter to the United States, but its economy is not overly dependent on crude, leading Mexico-watchers to say the peso is being unfairly punished.
Still, lack of liquidity in the coming weeks combined with further pressure on oil prices could drive more peso losses.
"The misconception is that Mexico is tied at the hip to oil prices, which I don't think is the case anymore," said Jack Deino, head of emerging-market debt at Invesco.
"But as long as oil goes lower, it is going to be hard to make an argument why Mexico's peso should stabilize." Chart-watchers note the peso's sharp fall this year suggests the currency could test the all-time low of 15.60 hit in March 2009.
After activating a dollar auction program this week, Mexican central bank Governor Agustin Carstens said policymakers could raise interest rates if the peso slump affects consumer prices.
In contrast to the peso, the selloff in the peso-bond market has been much less dramatic. That suggests funds are holding on to Mexican bond positions while placing bets against the peso to hedge their losses, analysts said.
While many bond investors remain committed to the view that a stronger U.S. economy will help Mexican growth, they are the ones driving peso losses.
"Perversely, this means there is going to be a sustained pressure" on the peso, said Benito Berber at Nomura in New York.
Global bond funds have piled in to Mexico in recent years, and foreign investors currently hold more than 2 trillion Mexican pesos ($136 billion) of debt.
The yield on Mexico's benchmark 10-year peso bond has risen only about 17 basis points since Dec. 4 to bid at 6.09 percent on Thursday, still below the levels in September. ($1 = 14.7230 Mexican pesos) (Reporting by Michael O'Boyle; editing by Simon Gardner and Matthew Lewis)