(Corrects scope of bond rise in first paragraph.)
The yield on the benchmark 5.5 percent notes due in January 2022 declined two basis points, or 0.02 percentage point, to 4.53 percent at 2:19 p.m. in Tel Aviv. Two-year interest rate swaps, an indicator of investor expectations for rates over the period, rose one basis point to 2.53 percent.
“The market was surprised the central bank did not cut rates but the central bank lowered its growth forecast and the rate cuts will continue,” Effi Cohen, a trader at Leader Capital Markets Ltd. in Tel Aviv said by telephone.
The Bank of Israel held its benchmark interest rate at 2.75 percent on Dec. 26 after reducing it twice in three months, saying policy makers wanted to be able to react to future developments. The bank lowered its 2012 growth forecast to 2.8 percent from a September prediction of 3.2 percent, citing the European debt crisis.
The yield on the consumer price-linked bonds due June 2013 increased three basis points to 0.79 percent. The two-year break-even rate, the yield difference between the inflation- linked bonds and fixed-rate government bonds of similar maturity, declined four points to 189, implying an average annual inflation rate of 1.89 percent.
The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, rose 0.1 percent to 257.78.
The shekel weakened for the first time in four days, dropping 0.5 percent against the dollar to 3.7942.
“We see local importers buying dollars,” said Rony Gitlin, a spot trader at Bank Leumi Le-Israel Ltd. in Tel Aviv. “This is the last week of the year and offshore banks and hedge funds are out of the game.”
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