Shekel Gains for 2nd Day on Gaza Cease-Fire Bets as Bonds Fall

Israel’s shekel rose for a second day on speculation efforts to end exchanges of fire that have killed 96 Palestinians and three Israelis will succeed. The nation’s bonds declined.

The shekel gained as much as 0.8 percent to 3.9335 a dollar before trading at 3.9393 a dollar at 2:14 p.m. in Tel Aviv, trimming this month’s drop to 1.4 percent, according to data compiled by Bloomberg. The currency is the best performer today among an expanded list of 31 major currencies tracked by Bloomberg. The TA-25 benchmark index of stocks added 0.8 percent, poised for the highest close since Nov. 11.

The decision whether to expand Israel’s Gaza operation or reach a cease-fire agreement “is rapidly approaching, and is a matter of hours, not even days,” Finance Minister Yuval Steinitz said in an interview today on Army Radio. The Islamist Hamas movement, which controls the Gaza Strip, is “mildly optimistic” for a truce, Nabil Shaath, a senior adviser to Palestinian Authority President Mahmoud Abbas said.

“Investors are getting more confident that the escalation won’t be prolonged also as they are talks about a possible cease-fire,” said Rony Gitlin, head of spot trading at Bank Leumi Le-Israel Ltd. in Tel Aviv. “We are not seeing foreign banks selling the local currency as they are not concerned about the conflict’s impact on the economy, which is expected to be minor.”

Economic Impact

Investors are not “running out” of the Israeli market and the economy “knows how to deal” with Gaza events, Tel Aviv bourse Chief Executive Officer Ester Levanon said in a Bloomberg TV interview today.

The number of rockets fired from Gaza fell to 20 so far today, said Avital Leibovich, an Israeli army spokeswoman. Egyptian President Mohamed Mursi met late yesterday with Hamas’ political chief and a delegation from the Islamic Jihad, amid efforts to end the exchange of rocket-fire, the state-run Middle East News Agency reported.

Investors are not “running out” of the Israeli market and the economy “knows how to deal” with Gaza events, Tel Aviv bourse Chief Executive Officer Ester Levanon said in a Bloomberg TV interview today.

Israeli prices are expected to rise 1.9 percent in the coming 12 months, according to survey of economists by the Bank of Israel today, down from last month’s 2.2 percent estimate. Annual inflation slowed to 1.8 percent in October below the 2.2 percent median estimate of 14 analysts in a Bloomberg survey.

“The lower-than-forecast October inflation data increased appetite for non-CPI linked government bonds which helped push bids higher at the auction,” said Oren Ossad , a trader at Excellence Nessuah Investment House Ltd., in Ramat Gan, Israel.

Debt Sale

The yield on the benchmark 5.5 percent Mimshal Shiklit bond due 2022 rose one basis point, or 0.01 percentage point, to 3.96 percent. The Finance Ministry sold a combined 1.45 billion shekels ($368 million) of debt at an auction today, according to ministry data posted on Bloomberg. Investors sought 7.5 times the 200 million shekels of the 4 percent notes due January 2018 offered, up from 4.4 times at last week’s sale.

The two-year break-even rate, the yield difference between the inflation-linked bonds and fixed-rate government bonds of similar maturity, fell two basis points to 203 basis points, implying an average annual inflation rate of 2.03 percent over the period.

The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, fell for a fourth day, declining 0.1 percent to 278.48. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, lost five basis points to 1.82 percent.

To contact the reporter on this story: Sharon Wrobel in Tel Aviv at swrobel4@bloomberg.net

To contact the editor responsible for this story: Alaa Shahine at asalha@bloomberg.net

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