Bloomberg News

Israeli Bonds Decline for First Time in 3 Weeks on Tax Shortfall

October 06, 2011

Oct. 6 (Bloomberg) -- Israel’s benchmark bond fell for the first time in almost three weeks, lifting the yield from the lowest since the note was sold, on speculation the government will raise the amount of debt it issues as tax revenue dropped.

The yield on the 5.5 percent Mimshal Shiklit bond due January 2022 rose one basis point, or 0.01 percentage point, to 4.54 percent at the 4:30 p.m. close in Tel Aviv. Revenue for the first nine months of the year are 1.2 billion shekels ($322 million) below target, the Finance Ministry said today.

“Investors are afraid of an excess of issues,” Assaf Rosenberg, head of fixed-income sales at Excellence Nessuah Investment House Ltd. in Ramat Gan, Israel, said by telephone.

Total-tax revenue fell to 17.2 billion shekels in September from 17.4 billion shekels a year earlier, the Finance Ministry said today. The ministry plans to raise 6 billion shekels from debt auctions in October, the largest monthly amount this year, according to data from the ministry posted on Bloomberg.

The shekel strengthened for a third day, rising 0.2 percent to 3.7130 per dollar at 4:52 p.m. It has declined 3.5 percent in the past 12 months, making it the best performer among 10 emerging markets in Europe, the Middle East and Africa tracked by Bloomberg.

Foreign currency reserves declined to $76.3 billion in September, the Bank of Israel said today, the lowest level in six months.

Lower Rates

Two-year interest-rate swaps, an indicator of investor expectations for rates over the period, declined four basis points to 2.68 percent. Bank of Israel Governor Stanley Fischer cut the benchmark interest rate by a quarter point to 3 percent on Sept. 26 as inflation slowed, growth eased and Europe, one of the country’s key export markets, grappled with its debt crisis. Goldman Sachs said Sept. 27 the benchmark lending rate may decline to 2.5 percent by year end, while Citigroup Inc. has forecast another quarter-point cut this year.

The two-year breakeven rate, which reflects market expectations for inflation over the period, declined 2 basis points to 178, implying an average annual inflation rate of 1.78 percent. Inflation-linked bonds due June 2013 rose for a second day, pushing the yield down three basis points to 1.12 percent.

The Tel-Bond 40 index of corporate bonds declined 0.2 percent.

--Editors: Claudia Maedler, Susan Lerner

To contact the reporter on this story: Shoshanna Solomon in Tel Aviv at ssolomon22@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net


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