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Shekel Strengthens as Israel Lifts 2013 Economic Growth Outlook

Israel’s shekel strengthened for a second day and government bonds fell after the country’s Finance Ministry raised its 2013 growth forecast for the economy, boosting investor demand for riskier assets.

The shekel rose 0.2 percent to 3.7834 a dollar at 4:41 p.m. in Tel Aviv, the sixth-best performer among an expanded list of 31 major currencies tracked by Bloomberg. The currency gained 0.9 percent this month. The yield on the 5.5 percent benchmark bonds due January 2022 increased for the first time since Dec. 4, adding one basis point, or 0.01 percentage point, to 3.71 percent.

Israel’s economy may expand 3.5 percent next year, the Finance Ministry said yesterday, revising an earlier forecast of 3 percent to include the effect of natural gas discoveries, with the offshore Tamar field set to start production by the second quarter next year. Israel posted a current account surplus in the third quarter, its first in a year, as imports declined, the Central Bureau of Statistics said yesterday.

“The growth update and the current account surplus are providing further support for shekel strength,” said Rony Gitlin, head of spot trading at Bank Leumi Le-Israel Ltd. in Tel Aviv. “We may see the start of the domestic gas flow positively impact the shekel in the coming year.”

The Finance Ministry today sold a combined 1.45 billion shekels ($383 million) of bonds at the final government auction this year, government data posted on Bloomberg show. Investors sought 3.7 times the 250 million shekels of 2018 notes on sale compared with 4.4 times at the previous sale on Dec. 10. The yield on the 2018 bonds jumped five basis points to 2.79 percent.

The two-year break-even rate, the yield difference between the inflation-linked bonds and fixed-rate government notes of similar maturity, retreated five basis points to 206, implying an average annual inflation rate of 2.06 percent over the period.

The Tel-Bond 40 Index of corporate bonds dropped for a fourth day, declining 0.1 percent to 279.88. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, slumped seven basis points to 1.71 percent.

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