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Israel Bonds Rise to Record as Growth Data Boosts Risk Demand

Jan. 3 (Bloomberg) -- Israel’s benchmark government bonds climbed for a fifth day, pushing the yield to the lowest level since they were issued in April, as improved manufacturing output around the world boosted demand for riskier assets.

The yield on the 5.5 percent bonds due in January 2022 dropped three basis points, or 0.03 percentage point, to 4.46 percent, at the 4:30 p.m. close in Tel Aviv. The Bank of Israel sold 11 billion shekels ($2.9 billion) of short-term Makam bills today at average yields below the previous sale. The shekel was little changed at 3.8211 a dollar at 4:55 p.m. in Tel Aviv.

Australian manufacturing expanded for the first time in six months in December, an industry survey showed, adding to evidence the global economy is improving after German and Chinese factory output reports beat economist estimates in the past two days. U.S. manufacturing probably expanded last month at the fastest pace since June, economists in a Bloomberg survey forecast before a report today.

“Positive sentiment surrounding global economies is contributing to a decline in the risk premium of Israeli assets and boosting appetite for higher-yielding assets,” said Ehud Itzhakov, a bond trader at Bank Hapoalim Ltd. in Tel Aviv. “Institutional investors are looking for buying opportunities in the market after two weeks that the Finance Ministry hasn’t had a bond auction.”

Makam Sale

The Finance Ministry last sold bonds on Dec. 19 and its first scheduled sale of 2012 will be Jan. 9 when it plans to auction 1.5 billion shekels of debt, including the government’s first 30-year bond.

The Bank of Israel sold 2 billion shekels of 91-day short-term notes, or Makam bills, at an average yield of 2.58 percent and 9 billion shekels of 364-day bills at an average yield of 2.51 percent. That compares with respective average yields of 2.7 percent and 2.8 percent, at the last auction of similar-maturity securities on Dec. 6.

The yield on the inflation-linked bonds due June 2013 declined for a third day, falling four basis points to 0.64 percent. The two-year break-even rate, the difference between inflation-linked bonds and similar-maturity fixed-rate government debt, dropped two basis points to 192, implying an average annual inflation rate of 1.92 percent.

Two-year interest-rate swaps, an indicator of investor expectations for rates over the period, retreated four basis points to 2.47 percent, matching the level on Dec. 26. The central bank that day left the benchmark interest rate unchanged at 2.75 percent, after reducing it twice in three months, saying it wants to be able to react to future developments.

The Tel-Bond 40 Index of corporate bonds rose for an eighth day, gaining 0.3 percent to 261.25.

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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