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Israeli Corporate Bonds Extend 2012 Gains on Fischer’s Cuts

Dec. 31 (Bloomberg) -- Israeli corporate bonds rose for a second day, extending a 2012 rally fueled by central bank moves to cut its benchmark interest rate to the lowest level in two years as inflation eased.

The Tel-Bond 40 Index of corporate bonds climbed 0.1 percent, bringing this year’s gains to 9.1 percent after a 1.6 percent drop in 2011. The TA-25 stocks index advanced 9.2 percent. The government’s benchmark bonds rose almost 7 percent, bringing the yield on the 5.5 percent notes due January 2022 to a record 3.61 percent at the close in Tel Aviv.

Inflation slowed to 1.4 percent in November, the lowest since July and within the government’s 1 percent to 3 percent target range. The country’s export-driven economy expanded 3.4 percent year-on-year compared with growth of 2.6 percent in the U.S. and contraction of 0.6 percent in the euro-area, its two main trading partners. The central bank on Dec. 24 raised its 2013 economic growth forecast to 3.8 percent from 3 percent.

The Bank of Israel, led by Governor Stanley Fischer, last week cut interest rates for a fourth time this year to 1.75 percent after inflation slowed to 1.4 percent in November, the lowest since July. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, fell less than one basis point to 1.65 percent, bringing this year’s drop to 75 basis points this year, the most since 2008.

“The surprise moderation in inflation in the second half of the year prompted the central bank to lower interest rates, leaving investors seeking riskier assets,” said Alex Zabezhinsky, chief economist at DS Securities & Investments Ltd. in Tel Aviv. “Looking to 2013, the bank may have room for another rate-cut.”

Unemployment Low

Israel’s unemployment rate dropped to 6.7 percent in November, the lowest since July, from 6.9 percent in the previous month, the Central Bureau of Statistics said today. The local economy expanded 2.8 percent in the third quarter slowing from 3.1 percent in the second quarter, the bureau said. For the full year the economy grew 3.3 percent compared with a previous estimate of 3.5 percent, it said.

The shekel weakened 0.1 percent to 3.7355 at 4:54 p.m., trimming this year’s gain to 2 percent. The currency’s three-month implied volatility, which reflects traders’ expectations of currency fluctuations over the period, fell 2.67 percentage points this year to 7.73 percent, the sixth-best performer among an expanded list of 31 major currencies tracked by Bloomberg.

To contact the reporter on this story: Sharon Wrobel in Tel Aviv at swrobel4@bloomberg.net

To contact the editor responsible for this story: Alaa Shahine at asalha@bloomberg.net

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