Israeli benchmark bonds rose, pushing the yield to the lowest level in almost a week, on speculation the central bank may lower borrowing costs as early as tomorrow as inflation decelerates and the shekel strengthens.
The 5.5 percent Mimshal Shiklit notes maturing in January 2022 yielded 3.72 percent, the lowest since Dec. 17, after falling four basis points, or 0.04 percentage point, at the close in Tel Aviv. The yield is down 13 basis points this month, taking its 2012 drop to 81 basis points. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, fell two basis points on Dec. 21 to 1.72 percent.
The Bank of Israel may lower the key interest rate by a quarter point to 1.75 percent, according to eight of 23 analysts surveyed by Bloomberg. One forecast a 50 basis-point reduction and the rest expect the rate to be held at 2 percent. Annual inflation slowed to a four-month low of 1.4 percent in November as economic growth eased, the statistics bureau said Dec. 14.
“It is not an easy call but we expect a rate cut tomorrow as there is no inflationary pressure, the economy is slowing and the shekel is gaining, hurting exports,” said Jonathan Katz, a Jerusalem-based economist for HSBC Holdings Plc. “This will be positive for government bonds.”
The shekel strengthened 1.8 percent this month, the seventh-best performer among an expanded list of 31 major currencies tracked by Bloomberg. Economic growth may slow to 3.3 percent this year from 4.6 percent in 2011, central bank estimates show.
The regulator will announce its rate decision tomorrow at 5:30 p.m. local time. Israeli consumer prices are expected to rise 1.8 percent in the next 12 months, down from 1.9 percent previously, according to a Bank of Israel survey of economists released on Dec. 18. The two-year break-even rate, the yield difference between the inflation-linked bonds and fixed-rate government debt of similar maturity, rose three basis points to 217, implying an average annual inflation rate of 2.17 percent.
Local funds raised a net 456 million shekels ($122 million) in the week ended Dec. 20, compared with 946 million shekels in the previous week, Meitav Investment House Ltd. reported today. Corporate-bond funds pulled in 107 million shekels compared with 330 million shekels a week earlier.
The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, advanced for the first time since Dec. 11, increasing 0.2 percent to 279.88.