Israel Yield Drops to Record Low as OECD Outlook Spurs Rate Bets
Israel’s government bonds rose, pushing the yield to a record low, on bets the central bank will lower borrowing costs after the Organization for Economic Cooperation and Development cut the nation’s growth forecast.
The yield on the 5.5 percent Mimshal Shiklit notes due in January 2022 fell two basis points, or 0.02 percentage point, to 3.86 percent at the 4:30 p.m. close in Tel Aviv, the lowest since they started trading in April 2011. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, fell for the third time in four days, retreating two basis points to 1.79 percent.
The OECD today lowered its 2012 economic growth forecast for Israel to 3.1 percent from its May estimate of 3.2 percent, and cut its projection for next year to 2.9 percent from 3.6 percent. The central bank yesterday kept the key interest rate at 2 percent after a surprise cut last month.
“The Bank of Israel couldn’t lower the rate for a second consecutive month but is expected to cut it in the first quarter of 2013 to support growth as inflation and consumer demand slow,” said Rafael Gozlan, chief economist at I.B.I.-Israel Brokerage & Investments Ltd. in Tel Aviv. “This environment is giving preference” to government bonds that are not linked to inflation “over consumer-price linked bonds.” The yield on the CPI bond due May 2017 rose for the first time since Nov. 21, increasing two basis points to 0.34 percent.
Twenty-two analysts surveyed by Bloomberg expected yesterday’s central bank rate decision, while one forecast a quarter-point cut. “Most indicators of real economic activity that became available this month support the assessment that the moderate growth of activity continues, and is expected to continue in the coming months,” the central bank yesterday said in its decision announcement.
The shekel weakened for the first time since Nov. 15, depreciating 0.2 percent to 3.8590 a dollar at 4:37 p.m. in Tel Aviv. Economic growth eased to 2.9 percent in the third quarter, less than forecast, the slowest pace in three years.
Annual inflation slowed to 1.8 percent in October from 2.1 percent the previous month, the Central Bureau of Statistics said Nov. 15, below the 2.2 percent median estimate of 14 analysts surveyed by Bloomberg. The government’s target range is 1 percent to 3 percent.
The two-year break-even rate, the yield difference between the inflation-linked bonds and fixed-rate government debt of similar maturity, declined five basis points to 215, implying an average annual inflation rate of 2.15 percent. The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, rose for a third day, increasing 0.1 percent to 279.96.
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