Israeli Yield Drops as Slower Global Growth Spurs Rate-Cut Bets

Israel’s government bonds rose, pushing the yield lower for a second day, as slower global growth forecasts increased bets the central bank may reduce interest rates again in the coming months.

The yield on the 4.25 percent securities due in March 2023 fell four basis points, or 0.04 percentage point, to 3.84 percent at the 4:30 p.m. close in Tel Aviv. It rose 10 basis points this week. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, dropped eight basis points to 1.25 percent, the lowest this month.

The World Bank cut its growth forecast to 2.2 percent from 2.4 percent amid concern central banks may pare stimulus. Israel relies on exports to markets including the U.S. and Europe for 40 percent of gross domestic product. The Bank of Israel last month cut interest rates by a cumulative 0.5 percent as inflation fell below the state’s 1 percent to 3 percent target for the first time in almost six years.

“Investors are turning back to buying longer-term debt on expectations that more rate-cuts will follow by the end of the year to support exports and growth,” said Avihay Hermon, a bond trader at Israel Discount Bank Ltd. in Tel Aviv. “Prospects of slower global growth and moderate inflation give the central bank room for monetary easing.”

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 on June 11. Annual inflation may have increased to 1.1 percent in May from 0.8 percent in the previous month, according to the median estimate of 12 analysts surveyed by Bloomberg. The data will be released tomorrow.

Israel posted a seasonally-adjusted surplus of $1.84 billion in the first quarter, compared with a revised $526 million in the October-December period, the statistics bureau said today. Last year, the country posted a surplus of a revised $849 million, compared with a surplus of $3.26 billion in 2011 and $7.17 billion in 2010.

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