Israel Yield Jumps to 2-Month High on Fischer Transition

Israel’s benchmark government bond yield rose to a two-month high as foreign investors trimmed holdings on concern over the central bank’s transition once Stanley Fischer steps down as governor at the end of June.

The yield on the 4.25 percent notes due March 2023 advanced eight basis points, or 0.08 percentage point, to 3.89 percent, the highest since April 3, at the 4:30 p.m. close in Tel Aviv. The shekel weakened for a second day, declining 0.4 percent to 3.6494 a dollar, poised for the lowest settlement since June 5.

Prime Minister Benjamin Netanyahu said yesterday that a new governor will be chosen within the next few days. Fischer has been credited with helping the country weather the global economic crisis better than most developed nations. Speculation the Federal Reserve and other central banks are considering reducing their bond purchases pushed 10-year yields to or near the highest in at least three months for 13 of 24 developed markets tracked by Bloomberg.

“Foreign investors are closing positions and reducing risk as there is still uncertainty about future central bank policy making since we don’t know yet who will be Fischer’s replacement,” Yshai Shilo, a fixed-income broker at Tel Aviv’s I.B.I.-Israel Brokerage & Investments Ltd., said by phone today. Speculation about the Fed’s bond purchases are also “pushing yields higher,” he said.

Front-runners to succeed Fischer include Deputy Governor Karnit Flug and Manuel Trajtenberg, a former economic adviser to Netanyahu, two people familiar with the appointment process said in April.

Slower Growth

Fischer in January unexpectedly announced his departure after eight years in the job, saying he wants to spend more time with his family in the U.S. and that he has achieved most of the goals he set out to accomplish.

He gradually cut the benchmark rate from 3.25 percent in 2011 to 1.25 percent to spur growth and last month announced a program to buy foreign currency, citing shekel appreciation and the downward revision in global growth forecasts. Israel’s currency has gained 2.2 percent this year, the best performer among 31 major currencies tracked by Bloomberg.

Foreigners sold a net $210 million of government bonds in May, according to preliminary figures released by the central bank on June 5, after investing a net $430 million in government securities a month earlier.

Economic growth will probably slow to 3.3 percent in 2014 from 3.8 percent this year, Finance Minister Yair Lapid told a parliamentary panel today. The trade deficit narrowed to $1.13 billion in May from a revised $1.18 billion a month earlier, the Jerusalem-based Central Bureau of Statistics said today.

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