Israel 2018 CPI Yield Soars Most in a Month as Inflation Slides

Israeli consumer-price linked bonds due 2018 fell, lifting the yield up the most in more than a month, after inflation declined as economic growth moderated.

The yield on the 3.5 percent inflation-linked notes maturing April 2018 rose four basis points, or 0.04 percentage point, to 0.20 percent at 12:27 p.m. in Tel Aviv. That’s the biggest gain since March 10. The yield on the 4.25 percent benchmark government bonds due March 2023 fell four basis points to 3.72 percent, the lowest since the notes started trading in August.

Annual inflation slowed to 1.3 percent in March from 1.4 percent the previous month, the Central Bureau of Statistics said April 15. That level is the lowest since June and below the 1.4 percent median estimate of 13 analysts surveyed by Bloomberg. Economic growth is forecast to slow to 2.8 percent this year from 3.1 percent in 2012, excluding first-time natural-gas revenues, according to the central bank. The Bank of Israel kept interest rates at 1.75 percent at the end of March.

“The lower-than-forecast drop in consumer prices points to further easing of inflationary pressure as economic growth slows,” said Modi Shafrir, chief economist at Tel Aviv-based I.L.S. Brokers Ltd. “On the back of moderate inflation and the recent appreciation of the shekel, we expect an interest rate reduction in coming months.”

Rate Announcement

The central bank’s next rate announcement will be on May 27, according to Bank of Israel data compiled by Bloomberg.

The shekel depreciated 0.2 percent to 3.6214 a dollar, trimming this year’s gain to 3.1 percent, the third-best performer among 31 major currencies tracked by Bloomberg. The Bank of Israel on April 8 bought U.S. dollars for the first time in almost two years in a bid to weaken the shekel after the currency rallied to the highest in almost 18 months.

The one-year break-even rate, the yield difference between inflation-linked bonds and fixed-rate government debt of similar maturity, slumped 40 basis points to 223. That implies an average annual inflation rate of 2.23 percent, within the government’s 1 percent to 3 percent target range.

The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, was little changed at 286.54.

To contact the reporter on this story: Sharon Wrobel in Tel Aviv at

To contact the editor responsible for this story: Claudia Maedler at

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