Israel Government Bonds Decline as Fed May End Bond Purchases

Israel’s benchmark bonds fell, pushing yields to the highest in more than two weeks, on concern that the U.S. Federal Reserve may end its monthly bond purchases this year, lowering demand for government bonds.

The yield on the 5.5 percent Mimshal Shiklit notes due in January 2022 gained 5 basis points, or 0.5 percentage point, to 3.77 percent at the close of trading in Tel Aviv. The yield gain tracked an eight basis-point advance in the 10-year Treasury note on Jan. 3 after Fed policy makers said they will probably end their $85 billion monthly purchases in 2013. Members were divided between a mid- or end-of-year finish. The U.S. is Israel’s largest trading partner.

“Investors are scared of a long-squeeze, with the Fed now saying it might stop buying bonds,” said Yshai Shilo, a fixed-income broker at I.B.I.-Israel Brokerage & Investments Ltd. in Tel Aviv.

The shekel weakened 0.3 percent to 3.7731 per dollar on Jan. 4, adding to a 1.1 percent decline on Jan. 3, the steepest drop since November. The yield on Israel’s 1-year swap gained 2.5 basis points to 1.735 percent on Jan. 4.

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