Israel Benchmark Yield Rises to 2-Month High on Economy Bets

Israel’s benchmark government bonds fell, lifting the yield to the highest in more than two months, and stocks rose, on bets a global recovery will help improve the country’s export-driven economy.

The yield on the 4.25 percent securities maturing March 2023 increased two basis points, or 0.02 percentage point, to 4.11 percent, matching the level on Nov. 26, at 11:40 a.m. in Tel Aviv. The benchmark TA-25 index of stocks jumped 1.5 percent, the most since Jan. 23. The shekel on Feb. 1 gained 1 percent to 3.6729 a dollar, the highest since November 2011.

Ten-year Treasury yields climbed to the highest since April after U.S. data on payrolls, consumer confidence and manufacturing added to signs the recovery of the world’s largest economy is gaining momentum. Israel derives 40 percent of its gross domestic product from exports. Economic growth slowed to 3.3 percent last year from 4.6 percent in 2011, according to the Central Bureau of Statistics.

“Investor demand for safer assets waned after positive global economic data over the weekend brought back a risk-on environment,” said Shuki Arditi, a bond trader at Tel Aviv- based Leader Capital Markets (LDRC) Ltd. “The encouraging data is also likely to help Israeli exports and push local economic growth.”

Israeli government bonds tend to track debt in the U.S., one of the nation’s biggest trading partners. The government’s 5.5 percent 2022 securities also declined, sending the yield up two basis points to 3.88 percent.

Risk Decrease

The Bank of Israel last week left its benchmark interest rate unchanged after a surprise cut in December brought the rate to the lowest in more than two years. “For the first time in a long while, investment houses assess that the risks in the global economy have decreased,” the central bank said Jan. 28. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, increased two basis points to 1.76 percent on Feb. 1.

Annual inflation, which unexpectedly accelerated to 1.6 percent in December from 1.4 percent a month earlier, may average 2.24 percent in the next two years, according to the two-year break-even rate. The rate, which reflects the yield difference between the inflation-linked bonds and similar- maturity fixed-rate government debt, rose for a fourth day, increasing one basis point to 224. The government’s target range is between 1 percent and 3 percent.

The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, gained for a second day, adding 0.1 percent to 282.16 today.

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

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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