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Israel Six-Year Bond Rises on U.S. Deficit Woes, Monday Auction

Israel’s government bonds due 2018 rose, pushing yields down for the first time in almost a week, as investor concern U.S. lawmakers will fail to reach a deficit agreement boosted demand for the relative safety of state debt.

The yield on the 4 percent Mimshal Shiklit notes due January 2018 declined one basis point, or 0.01 percentage points, to 2.89 percent at the 4:30 p.m. close in Tel Aviv, the first drop since Nov. 26. The yield on the 5.5 percent benchmark bonds due January 2022 fell one basis point to 3.84 percent.

Treasuries rose for the first month since July as President Barack Obama and lawmakers bantered about tax increases and spending cuts, intensifying concern that a failure to reach an agreement may lead to an economic downturn. Exports comprise about 40 percent of Israel’s economic output, and the U.S. is one of its largest markets.

“Local government yields are tracking their U.S. counterpart over the weekend amid uncertainty about the progress on the deficit talks,” said Sagie Poznerson, head of trading at Leader Capital Markets Ltd. in Tel Aviv. “Investors are also preparing for tomorrow’s government auction.”

Auction Tomorrow

The Finance Ministry plans to sell a combined 1.3 billion shekels ($341 million) of bonds at Monday’s auction, ministry data posted on Bloomberg show. The debt sale includes 300 million shekels each of the 2018 bonds and of 4.25 percent notes due March 2023. The government will also sell 250 million shekels of 2.75 percent inflation-linked securities due September 2022.

Israeli funds last month raised 3.7 billion shekels, the the strongest month since Nov. 2009, Meitav Investment House Ltd. said today. Government-bond funds raised 1.04 billion shekels and corporate-bond funds raised 1.97 billion shekels. Economic growth slowed to 2.9 percent in the third quarter, less than forecast, from 3.4 percent the previous three months. The Tel-Bond 40 Index of corporate bonds advanced for the first time in three days, adding 0.1 percent to 279.97. The two-year break-even rate, the yield difference between the inflation-linked bonds and fixed-rate government bonds of similar maturity, was little changed at 212, implying an average annual inflation rate of 2.12 percent over the period.

The shekel strengthened 0.2 percent to 3.8154 a dollar on Nov. 30, boosting last month’s increase to 1.8 percent. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, rose one basis point to 1.82 percent on Nov. 30.

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