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Israel Benchmark Bonds Drop Before Inflation Data, Debt Auction

Israel’s benchmark bonds fell for the first time in five days before an inflation report today and a government debt auction tomorrow.

The yield on the 5.5 Mimshal Shiklit bond due January 2022 increased one basis point, or 0.01 percentage point, to 4.48 percent, at the close of Tel Aviv trading. Inflation probably declined to an annual rate of 2.4 percent in December from 2.6 percent the prior month, according to the median estimate of 12 economists compiled by Bloomberg. Prices probably rose 0.2 percent in the month after declining 0.1 percent in November, according to the survey. The data is scheduled to be released at 6:30 p.m. local time.

“Investors were sitting on the fence at the end of the trading day ahead of the inflation data coming out later and ahead of the bond auction tomorrow,” Sagie Poznerson, head of trading at Leader Capital Markets Ltd. in Tel Aviv, said by telephone. “Some investors were selling today to buy at better prices at the auction tomorrow.”

The Finance Ministry is planning to sell 1.5 billion shekels ($390 million) of debt tomorrow, including 300 million shekels of the benchmark bonds due 2022 and 200 million shekels of the 5.5 percent bonds due 2042.

The two-year break-even rate, the yield difference between the inflation-linked bond and fixed-rate government bonds of similar maturity, fell seven basis points to 195. That implies an average annual inflation rate of 1.95 percent. The yield on the CPI-linked bonds due June 2013 was little changed at 0.45 percent. The rate has dropped 35 basis points this year.

Fund Flows

Israeli funds raised a net 349 million shekels from investors in the week ended Jan. 12, Meitav Investment House Ltd. said today. Corporate-bond funds drew investments for the first week since October, pulling in 34 million shekels, while government bond funds raised 226 million shekels and stock funds drew investments of 32 million shekels, according to Tel Aviv-based Meitav.

The Tel Aviv Bond 40 Index, a measure of inflation-linked and fixed-rate corporate bonds, fell for the first time in seven days, dropping 0.2 percent. Israel Electric Corp. said its board approved a bond sale of as much as $500 million to institutional investors, according to a Jan. 12 filing.

The shekel, which weakened 7.5 percent in the past 12 months, lost 0.4 percent to 3.8473 a dollar on Jan. 13. Two-year interest-rate swaps, an indicator of investor expectations for rates over the period, rose two basis points to 2.50 percent on Jan. 13. The central bank last month held the benchmark interest rate at 2.75 percent.

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