Israel’s benchmark bonds gained, sending the yield to the lowest on record, on bets easing inflationary pressures will enable the central bank to lower interest rates to spur economic growth.
The yield on the 5.5 percent Mimshal Shiklit notes due in January 2022 slumped five basis points, or 0.05 percentage point, to 3.79 percent, at the 4:30 p.m. close in Tel Aviv. One- year interest-rate swaps, an indicator of investor expectations for rates over the period, fell for the first time since Nov. 27, dropping six basis points to 1.79 percent.
The Bank of Israel last week kept its benchmark interest rate at 2 percent after a surprise cut last month to support growth, which the Central Bureau of Statistics said in October may slow to 3.5 percent this year from 4.6 percent in 2011. Annual inflation may stay unchanged at 1.8 percent in November, the lowest since July, according to the median estimate of 11 analysts on Bloomberg. The data is set to be released Dec. 14., 10 days before a central bank meeting to review interest rates.
“Expectations of no inflation in coming months is increasing the possibility for the central bank to lower interest rates as growth slows and unemployment rises,” said Jonathan Katz, a Jerusalem-based economist for HSBC Holdings Plc. “This environment is positive for longer-term government bonds.”
The unemployment rate for October rose to a seasonally- adjusted 7 percent from 6.9 percent in the previous month, the statistics bureau said Nov. 28. The two-year break-even rate, the yield difference between the inflation-linked bonds and fixed-rate government debt of similar maturity, shrank four basis points to 204, implying an average annual inflation rate of 2.04 percent. The government’s inflation target is between 1 percent to 3 percent.
The shekel weakened for the first time in three days, declining 0.5 percent to 3.8209 a dollar. The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, rose for a second day, gaining 0.3 percent to 280.56.
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