Israeli Bonds Rise With Stocks as Netanyahu Wins ElectionSharon Wrobel and Shoshanna Solomon
Israel’s benchmark government bonds rose to the highest in more than two weeks and stocks gained after preliminary election results showed Prime Minister Benjamin Netanyahu in lead position to form a new coalition government.
The yield on the 3.75 percent benchmark bonds due March 2024 dropped five basis points to 1.59 percent at the close of trading. The TA-25 Index of stocks increased 1 percent to 1,578.90, the highest on record. The shekel slipped 0.4 percent to 4.0246 per dollar as of 5:47 p.m. in Tel Aviv.
“We are seeing investors buying shekel-denominated government bonds as they like the results of the election in that there is no big change,” Gil Chen, head of the fixed-income desk at Israel Brokerage & Investments Ltd. in Tel Aviv, said by phone.
Netanyahu said last week he would offer the finance ministry to 54-year-old Moshe Kahlon, leader of the new Kulanu party, which is poised to win 10 Knesset seats after campaigning for a reduction in the cost of living. Kahlon gained widespread popularity when, as communications minister in Netanyahu’s Likud party, he allowed new competitors into the cellular phone market, cutting the cost of mobile phone usage by 90 percent.
“Expectations that Moshe Kahlon may become finance minister and introduce reforms that will put pressure on prices is also pushing yields down,” said Chen.
Israeli yields are also tracking their U.S. counterparts before a Federal Reserve policy decision, Chen added. The yield on the U.S. 10-year Treasury bonds dropped three basis points on Wednesday.
Netanyahu’s Likud was on track to capture as many as 30 seats in the 120-member parliament, six more than Isaac Herzog’s Zionist Union, and 12 more than the party currently has, according to unofficial preliminary results from Tuesday’s race.
The results are not yet final and do not include votes from soldiers and diplomats. The central election committee is due to announce unofficial results by Thursday and present the final count to President Reuven Rivlin by March 25. Netanyahu intends to form a coalition within two to three weeks, Army Radio reported, citing a Likud spokesman. In the past seven Israeli elections, it took an average of 38 days to form a government.
Israel’s A+ credit rating was unaffected by the election outcome, on the assumption that “any new coalition government would maintain stable public finances,” Standard & Poor’s Ratings Services said.
Traders are the most bullish on the shekel in more than three weeks, according to three-month 25-delta risk reversal data compiled by Bloomberg, which shows the cost of options used to hedge against changes in the value of the currency. The rate was at 113 basis points, the least since Feb. 10 on a closing basis.
The Israeli currency has dropped 14 percent in the past year as policy makers sought to prevent an appreciating shekel from hurting exports, which make up more than a third of the country’s gross domestic product.
“The shekel is poised to continue a weakening trend in the short-term,” Yossi Fraiman, chief executive officer at Bnei Brak, Israel-based investment house Prico Group, said by phone on Wednesday. “The election is not a big surprise in terms of leadership. The only difference is that Netanyahu is getting more power and we may see more competition in the economy.”
The new government will need to address economic reforms that could affect the currency, including a regulator’s decision last year to reconsider foreign stakes in Israel’s two largest natural gas reserves, according to BlueStar Global Investors LLC.
The election campaign had delayed “a decision about the prospect of seeing inflows from Israeli gas, which is one of the forces that’s been behind the shekel’s appreciation,” Bruce Schoenfeld, research director at New York-based BlueStar, which builds indexes to invest in Israeli companies, said by phone.
The Bank of Israel unexpectedly trimmed the policy rate last month to a record low of 0.1 percent, seeking to revive economic growth and halt a decline in consumer prices. The central bank has reduced rates 13 times since 2011 and bought foreign currency to weaken the shekel and make exports more competitive.
Economic growth slowed to 2.8 percent last year from 3.2 percent, in part due to the conflict in the Gaza Strip in July and August. Growth will rally to 3.2 percent in 2015, the Bank of Israel forecast in December.
“Now that elections are out of the way, what we hope is that the economic issues can be addressed without being muddied by political considerations,” William Scholes, an investment manager at Aberdeen Asset Management Plc, which oversees $50 billion in emerging-market equities, said by phone from London March 18. “Visibility and consistency of policy are vital to companies’ ability to budget and adapt going forward.”