Israeli benchmark bonds dropped for a fifth day, sending the yield to a three-month high, amid a global selloff in government debt and as Jacob Frenkel was nominated to succeed Stanley Fischer as central bank governor.
The yield on the 4.25 percent notes due March 2023 climbed five basis points, or 0.05 of a percentage point, to 3.93 percent, the highest since March 24, at the close in Tel Aviv. The benchmark TA-25 Index (TA-25) of stocks dropped 1 percent. The shekel strengthened 0.1 percent to 3.6366 a dollar at 6:05 p.m. after the central bank left interest rates at 1.25 percent following two rate cuts last month.
Israel’s bond yield has advanced 24 basis points in the past week as the 10-year Treasury yield climbed to the highest since 2011 before U.S. data this week forecast to add to the case for the Federal Reserve to slow bond purchases. Selling pressure today hasn’t been affected by the appointment of Frenkel, chairman of JPMorgan Chase (JPM) International, said Shuki Arditi, a bond trader at Leader Capital Markets (LDRC) Ltd.
“In this environment it’s difficult for investors for the moment to price in the impact of the new governor,” Tel Aviv-based Arditi said by phone. “The bond market is reacting to rising yields in the U.S.”
Frenkel, who served as Bank of Israel governor between 1991 and 2000, is taking the regulator’s top job at a time when the economy is contending with slowing growth, a strengthening shekel and surging housing prices. Frenkel is an “excellent” choice because he has the right experience to stabilize Israel’s slowing economy, Finance Minister Yair Lapid said in an Army Radio interview today.
“What remains to be seen is if he will continue Fischer’s interventionist path of buying dollars to moderate shekel gains,” Rony Gitlin, head of spot trading for Tel Aviv-based Bank Leumi Le-Israel (LUMI), said by phone.
Fischer, who steps down at the end of the month, announced a program in May to buy foreign currency in a bid to trim the shekel’s gains amid slowing economic growth. The shekel has appreciated 2.7 percent this year, the most among 31 major currencies tracked by Bloomberg.
The central bank expects the base lending rate of 1.25 percent “to remain at this level in the coming year,” according to an e-mailed statement. Thirteen 13 out of 20 analysts surveyed by Bloomberg predicted the move. The economy will probably expand 3.2 percent in 2014, down from 3.8 percent this year, the central bank said today. To support growth, the regulator has cut the base lending rate by two percentage points since 2011.
One-year interest swaps, an indicator of investor expectations for rates over the period, advanced one basis point to 1.25 percent.
The Finance Ministry sold 1.35 billion shekels ($371 million) of bonds today at the last auction of the month, its data on Bloomberg show. Investors sought 5.5 times the 250 million shekels of 2023 benchmark bonds at the sale, up from 3.4 times at a 200 million-shekel offering on June 17.
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