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Israel’s Bonds Decline Before Inflation Report; Shekel Retreats

Israel’s 10-year government bond dropped, pushing the yield to a record high, before a report this week that economists said will show inflation quickened. The shekel fell.

The annual inflation rate accelerated to 4.4 percent in March, the fastest pace in more than two years, from 4.2 percent the previous month, according to the median forecast of nine economists in a Bloomberg News survey. The central bank on March 28 raised the benchmark lending rate by 50 basis points to 3 percent, the highest since November 2008, to combat accelerating inflation.

“Bond traders globally are increasingly pricing in a scenario that global rates will move up earlier than previously thought,” said Jonathan Katz, a Jerusalem-based economist for HSBC Holdings Plc. “The inflation story, interest-rate expectations have pushed rates up globally.”

The yield on the benchmark Mimshal Shiklit note due January 2020 gained 4 basis points to 5.36 percent at the 4:30 p.m. close in Tel Aviv. The shekel weakened 0.2 percent to 3.4432 per dollar as of 4:43 p.m.

The Jerusalem-based Central Bureau of Statistics is scheduled to release the inflation report on April 15. In the U.S., the Labor Department will probably say this week that consumer prices rose 0.5 percent last month from February, and gained 2.6 percent from March 2010, according to Bloomberg News survey.

Israel’s seasonally adjusted consumer-price index increased at an annual rate of about 6 percent in the last six months, the Bank of Israel said today in the minutes from its last rate-setting meeting.

“Robust consumer demand in March will be rate hike supportive at the next monetary meeting,” Katz wrote in a report today. He expects a 25 basis-point increase to 3.25 percent at the April 24 policy meeting.

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