Israel Yield Rises to 2-Month High as Growth Fuels Rate Bets

Israel’s benchmark government bonds fell, pushing yields to the highest in almost two months, as better-than-forecast economic growth increased bets the Bank of Israel will keep interest rates unchanged this month.

The yield on the 4.25 percent notes due March 2023 gained five basis points, or 0.05 percentage point, to 3.89 percent, the highest since June 24, at the close in Tel Aviv. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, fell one basis point to 1.15 percent on Aug. 16. The benchmark TA-25 Index (TA-25) of equities rose 0.2 percent.

The Israeli economy expanded an annualized 5.1 percent in the second quarter compared with a revised 2.7 percent in the previous quarter, driven by an increase in exports and consumer spending, the Central Bureau of Statistics said. The median estimate of eight economists surveyed by Bloomberg was 3 percent. Israel’s purchasing managers index increased in July to 47.6 from 46 in the previous month, Bank Hapoalim said.

“The good economic data should postpone another interest rate cut at the end of this month,” Assaf Rosenberg, head of fixed-income sales at Excellence Nessuah Investment House Ltd., in Ramat Gan, Israel, said by phone.

The central bank’s monetary policy committee, led by interim Governor Karnit Flug, will hold interest rates at 1.25 percent on August 26, according all 15 analysts surveyed by Bloomberg. The Bank of Israel has gradually lowered interest rates from 3.25 percent in 2011 to help boost economic growth.

Annual inflation accelerated to 2.2 percent from 2 percent after the government increased sales taxes, the statistics bureau said Aug. 15. The government’s target range for annual inflation is 1 percent to 3 percent. Economic growth is forecast to slow to 3.2 percent in 2014, from 3.8 percent this year, the central bank said June 24.

The Finance Ministry will tomorrow sell a combined 1.2 billion shekels ($336 million) in government bonds.

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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