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Israeli Bonds Fall Most in a Week on ECB Bank Repayment Outlook

Jan. 27 (Bloomberg) -- Israel’s benchmark government bonds fell, pushing the yield up the most in a week, amid investor bets the global debt crisis is abating after the European Central Bank said banks plan to repay more loans than forecast.

The yield on the 4.25 percent securities maturing March 2023 increased three basis points, or 0.03 percentage point, matching the gain on Jan. 20, to 3.99 percent at the close in Tel Aviv. Treasuries fell the most since September on Jan. 25 after the ECB said banks will pay back 137.2 billion euros ($184.7 billion) of its three-year loans next week. That surpassed the 84 billion-euro median forecast in a Bloomberg News survey economists.

Israeli government bonds tend to track debt in the U.S., one of the nation’s biggest trading partners. The government’s 5.5 percent 2022 securities also declined today, sending the yield up three basis points to 3.75 percent.

“Investor demand for safer assets waned on prospects that stability is coming back to the global economy,” Shuki Arditi, a bond trader at Leader Capital Markets Ltd. in Tel Aviv, said by phone. “The positive momentum is pushing Israeli yields up today.”

A recovery in the global economy would support Israel, which derives 40 percent of its gross domestic product from exports. Economic growth slowed to 3.3 percent last year from 4.6 percent in 2011, according to the Central Bureau of Statistics.

Rates Unchanged

To spur economic growth, the central bank lowered the key interest rate by 25 basis points to 1.75 percent last month. Policy makers may leave borrowing costs unchanged tomorrow, according to all 21 analysts surveyed by Bloomberg. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, rose one basis point to 1.74 percent, on Jan. 25.

Annual inflation, which unexpectedly accelerated to 1.6 percent in December from 1.4 percent a month earlier, may average 2.04 percent in the next two years, according to the two-year break-even rate. The rate, which reflects the yield difference between the inflation-linked bonds and similar-maturity fixed-rate government debt, fell for a third day, retreating five basis points to 204.

Israel’s shekel weakened 0.3 percent to 3.7215 to the dollar on Jan. 25, trimming this month’s advance to 0.3 percent. The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, fell 0.1 percent to 282.15 today.

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

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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