UPDATE 2-Mexico T-bill yields surge as bank cranks up supply

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By Noel Randewich

MEXICO CITY, Nov 18 (Reuters) - The yield on Mexico's one-month Cetes shot up 64 basis points to 7.72 percent at Tuesday's auction as the central bank bumped up its offer to meet high demand caused by the global credit crisis.

It was the first weekly auction since mid-August that the yield on 28-day Cetes rose. Yields on longer-term Cetes, or T-bills, also jumped.

The widening global credit debacle and a steep slump in the peso MEX01 MXN= last month caused panic among investors, many of whom abandoned long-term Mexican bonds and fled to safer shorter-term debt.

Attempting to stabilize the market and push up short-term interest rates, the central bank has recently increased its offer of T-bills at weekly auctions.

"They want the yield curve to be more normal," said Luis Flores, senior economist at Ixe brokerage in Mexico City. "They want a positive slope, but with smaller differences between long- and short-term yields."

The central bank's reference one-day interest rate it uses to direct monetary policy is currently targeted at 8.25 percent.

At Tuesday's sale, the yield on three-month Cetes rose 22 basis points to 8.06 percent while the six-month yield rose 20 basis points to 8.38 percent. The one-year note sold at a 8.51 percent yield, 17 basis points higher than when auctioned last on Oct. 21.

The 10-year peso bond sold at a yield of 9.82 percent, up 1.32 percentage points from the last time it was auctioned on Oct. 7.

Analysts also said they were disappointed because a recent meeting of leaders from 20 of the world's leading rich or developing economies did not produce concrete action to tackle the international meltdown.

"Investors got their hopes up on the G20 summit, but the results left a lot to be desired," said a trader in Mexico City. (Additional reporting by Lorena Segura; Editing by James Dalgleish)