Israel Yield Plunges to Record Low on U.S. Fiscal, Growth Woes
Israel’s government bonds rose for a fifth day, pushing the yield to a record low, on concern the lack of progress among U.S. lawmakers on budget negotiations will affect the country’s export-driven economy as growth slows.
The yield on the 5.5 percent Mimshal Shiklit notes due in January 2022 dropped two basis points, or 0.02 percentage point, to 3.84 percent at the 4:30 p.m. close in Tel Aviv, the lowest since they started trading in April 2011. The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, fell for the first time this week, retreating 0.1 percent to 279.74.
Treasury yields dropped for a third day as corporate leaders and President Barack Obama prepared to meet after Senate Majority Leader Harry Reid yesterday lamented the lack of progress toward averting a so-called fiscal cliff of tax increases and spending reductions. Exports account for about 40 percent of Israel’s gross domestic product, with the U.S. and Europe its largest markets.
“Local yields are tracking their U.S. counterpart amid little progress on budget negotiations which may negatively affect growth in Israel’s export economy and decelerate inflation,” said Effi Cohen, a bond trader at Leader Capital Markets (LDRC) Ltd. in Tel Aviv. “As a result, we expect the Bank of Israel to further cut borrowing costs to support the economy.”
The unemployment rate for October rose to a seasonally adjusted 7 percent from a revised 6.9 percent in the previous month, the Central Bureau of Statistics said today. Labor participation fell to 63.8 percent from 64.1 percent, it said. The Organization of Economic Cooperation and Development yesterday lowered Israel’s 2012 economic growth forecast 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 Bank of Israel this week kept the key interest rate at 2 percent after a surprise cut last month. One-year interest- rate swaps, an indicator of investor expectations for rates over the period, gained one basis point to 1.8 percent. The swaps have declined 14 basis points this month.
The two-year break-even rate, the yield difference between the inflation-linked bonds and fixed-rate government debt of similar maturity, was little changed at 215, implying an average annual inflation rate of 2.15 percent.
Annual inflation slowed to 1.8 percent in October from 2.1 percent the previous month, and below the 2.2 percent median estimate of 14 analysts surveyed by Bloomberg, the statistics bureau said Nov. 15. The government’s target range is 1 percent to 3 percent.
The shekel strengthened 0.1 percent to 3.8569 a dollar, boosting this month’s gain to 0.7 percent, the best performer among an expanded list 31 major currencies tracked by Bloomberg.
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