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Bond Investors Shun Israeli Government for Companies on Outlook

Israel’s benchmark bond yield headed for the first weekly increase in more than a month as demand for riskier corporate notes grew after the government raised its 2013 economic growth outlook.

The yield on the 5.5 percent government notes due January 2022 has added three basis points, or 0.03 percentage point this week, set for the first gain since the week ended Nov. 15, according to data compiled by Bloomberg. It was unchanged at 3.79 percent at 11:55 a.m. in Tel Aviv. The shekel strengthened as much as 0.3 percent to 3.7412 a dollar, the highest intraday level since April 30, before trading at 3.7473 to the dollar.

Gazit-Globe Ltd. (GLOB), Israel’s largest real estate company, last week doubled to 1 billion shekels ($267 million) the size of a bond sale to meet investor demand. First International Bank of Israel Ltd. (FTIN) yesterday received bids from institutions of more than twice the 400 million shekels it’s seeking in a sale of deferred notes. The Finance Ministry on Dec. 16 raised its 2013 growth forecast to 3.5 percent from 3 percent.

“Investors are switching to riskier assets, selling government bonds as companies are coming to the market to sell debt after a dry period,” said Sagie Poznerson, head of trading at Leader Capital Markets (LDRC) Ltd. in Tel Aviv. “Corporate debt issues are providing a sound alternative for investors also as interest rates are expected to remain low.”

The Bank of Israel has gradually reduced the main borrowing rate from 3.25 percent in August 2011 to 2 percent in an effort to shore up the economy. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, declined one basis point to 1.73 percent, taking this week’s drop to five basis points.

The two-year break-even rate, the yield difference between the inflation-linked bonds and fixed-rate government debt of similar maturity, rose two basis points to 214, implying an average annual inflation rate of 2.14 percent.

The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, fell for a seventh day, losing 0.1 percent to 279.19. The index reached a record high on Dec. 11.

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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