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Israel Bond Yield Gains to Two-Month High After Fischer Resigns

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Jan. 30 (Bloomberg) -- Israel’s benchmark government bond yield advanced to the highest level in two months after Bank of Israel Governor Stanley Fischer, who helped the economy rebound from the global economic crisis, said he will step down in June.

The yield on the 4.25 percent Mimshal Shiklit maturing March 2023 increased one basis point, or 0.01 percentage point, to 4.10 percent, the highest level since Nov. 26, at the close in Tel Aviv. The yield jumped eight basis points after the announcement yesterday. The shekel was little changed today, while the equities benchmark TA-25 index fell 0.8 percent.

Fischer, governor since 2005, said he will depart in the middle of his second term, leaving an economy that since 2009 has expanded by 14.7 percent, compared with 10.7 percent in Australia, 3.2 percent in the U.S. and a contraction of 1.5 percent in Europe, according to the Finance Ministry.

“Governor Fischer was clearly the leader of the economy with a high reputation,” Rafi Gozlan, chief economist at I.B.I.-Israel Brokerage and Investments Ltd. said today by phone. “There are fears that the bank of Israel or the government could make mistakes, and the biggest fear is about the deficit.”

Israel posted a gap of 39 billion shekels ($10.5 billion) for 2012, or 4.2 percent of gross domestic product, the Finance Ministry said on Jan. 13.

One-year interest-rate swaps, an indicator of investor expectations for rates over the period, rose one basis point to 1.78 percent, the highest since Dec. 14.

Long Time

Fischer said today at a press conference in Jerusalem that Prime Minister Benjamin Netanyahu, who got a chance to serve a third term as prime minister, understands economics and is responsible. He is leaving the Bank of Israel in “good condition” and the economy in a good state “with challenges,” Fischer said, adding that many of his goals have been achieved and that he is leaving because eight years at the job is “a long time.”

One of Fischer’s primary goals was passing a new Bank of Israel law, he said today. The law established a monetary committee to set interest rates, rather than relying only on the governor. Investors understand that not just one man manages the economy, he said.

The central bank left its benchmark interest rate unchanged at 1.75 percent on Jan. 28 after a surprise cut the previous month that brought the rate to the lowest in more than two years. The regulator has gradually reduced the borrowing rate from 3.25 percent in 2011 to shore up the economy amid the European debt crisis.

Policy Changes

The market reaction is “mainly due to the fear that the accommodative monetary policy, held during Fischer’s term will be changed,” Modi Shafrir, chief economist at Tel-Aviv-based I.L.S. Brokers, wrote in an e-mailed note yesterday. “One should still remember that since November 2011 the local rate decision is conducted by the Monetary Policy Committee and it seems that the majority of members still hold a relatively dovish attitude.”

The TA-25 benchmark index dropped to the lowest level since Sept. 24, after declining 0.9 percent yesterday as news of the resignation was announced. The measure had risen as much as 0.5 percent earlier today before Haaretz newspaper reported Israeli air force warplanes flew a number of sorties over Lebanon last night, citing reports in the Lebanese media. Agence France-Presse later reported that a convoy transporting weapons near Syria’s border with Lebanon had been attacked.

An Israeli army spokeswoman, speaking anonymously in accordance with regulations, told Bloomberg News she was checking the reports of the attack.

Fischer’s resignation and security concerns “are increasing uncertainty in the market and pushing stocks down,” Adi Babani, a sales trader at Clal Finance Batucha Brokerage Ltd. in Tel Aviv said today by phone.

The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, lost 0.1 percent to 281.47.

The two-year break-even rate, which reflects the yield difference between the inflation-linked bonds and similar-maturity fixed-rate government debt, gained for a second day, adding eight basis points to 218.

To contact the reporter on this story: Shoshanna Solomon in Tel Aviv at ssolomon22@bloomberg.net

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

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