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Israel 10-Year Bond Yields Climb on Bets Inflation to Accelerate

March 6 (Bloomberg) -- Israel’s 10-year government bonds dropped for a fourth day as higher tax revenue in February boosted speculation that inflation will accelerate, leading to a faster pace of interest-rate increases.

Tax revenue climbed about 15 percent in February, after accounting for changes in tax laws, to 17.1 billion shekels ($4.7 billion), the Israel Tax Authority said today. In the first two months of the year, revenue was 1.8 billion shekels above target, it said in an e-mailed statement.

“The increase in government revenue from taxes is another sign pointing to high demand and strong growth in the economy while unemployment is low,” said Rafael Gozlan, chief economist at Leader Capital Markets Ltd. in Tel Aviv. “In the current economic environment, the data adds to the factors fueling inflation, demanding faster rate hikes."

The benchmark Mimshal Shiklit bond due January 2020 fell, pushing the yield up 3 basis points to 5.2 percent at the 4:30 p.m. close in Tel Aviv, the highest level since January 2010.

‘‘The pressure on yields can be expected to continue its upward trend as inflationary pressures are high,’’ Gozlan said.

The signal from the European Central Bank on March 3 that it may increase interest rates next month ‘‘will accelerate the speed of hikes by the Bank of Israel to control inflation,’’ he added.

The shekel weakened 0.4 percent to 3.6239 against the dollar in Tel Aviv on March 4.

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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