Investors trim bets on Mexican rate hike after U.S. debate

Investors on Tuesday trimmed bets on interest rate hikes by Mexico's central bank after the peso soared on the view that U.S. presidential candidate Hillary Clinton fared better than rival Donald Trump in a televised debate.

Yields on Mexican interest rate swaps fell sharply, suggesting investors were eyeing less steep rate hikes in the coming months. The battered peso surged, on track for its best one-day percentage gain since June.

The yield on the 2-year Mexican swap contract, the most liquid, was bid down 6-1/2 basis points.

The peso has plumbed record lows this month, hurt by concerns that Trump could win the election and make good on his promise to unwind free trade with Mexico and block remittances to pay for a border wall.

Fourteen of 21 analysts in a Reuters poll on Monday before the debate expected Mexico's central bank would hike rates on Thursday in a bid to support the peso and make sure the currency's depreciation does not drive up inflation.

According to the median of the poll, Mexico's central bank was expected to raise rates by half a percentage point to 4.75 percent.

Meanwhile, Mexican interest rate swaps point to an around 80 percent chance for a less aggressive 25 basis-point hike.