Israel’s shekel climbed to a one-week high and bonds rallied on speculation Prime Minister Benjamin Netanyahu will assemble a governing coalition able to curb the country’s budget deficit.
The currency appreciated 0.5 percent to 3.7124 on the dollar at 4:44 p.m. in Tel Aviv, posting the biggest gain among 10 emerging Europe, Middle East and Africa region currencies tracked by Bloomberg. Benchmark 10-year bonds rose for a second day as yields fell three basis points, or 0.03 percentage point, to 3.96 percent.
This week’s elections gave Netanyahu the chance to serve a third term as prime minister with a weaker mandate than four years ago, leading him to seek an alliance with centrist Yair Lapid’s Yesh Atid party, which took the second-most seats. Netanyau aims to trim the deficit to 3 percent of economic output this year from 4.2 percent in 2012, requiring 14 billion shekels ($3.8 billion) in spending cuts. He called the vote a year ahead of schedule after failing to get support for the measures.
“Investors are confident the coalition will be pro-growth and maintain fiscal responsibility,” Modi Shafrir, chief economist at Tel Aviv-based I.L.S. Brokers, said by phone today. “Even if the Orthodox parties will join the coalition, they will not have the power to blackmail with their usual budgetary demands. This optimism is reflected in the local financial and bond markets.”
One-year interest-rate swaps, an indicator of investor expectations for rates over the period added, one basis point to 1.72 percent.
The two-year break-even rate, the yield difference between inflation-linked bonds and fixed-rate government bonds of similar maturity, dropped one basis point to 209, implying an average annual inflation rate of 2.09 percent. The Tel-Bond 40 Index of corporate bonds was up for a second day this week, increasing 0.2 percent to 282.31.