Oct. 10 (Bloomberg) -- Israel’s shekel strengthened the most in more than three weeks and government bonds declined as rallying stock markets damped demand for safer assets.
The shekel rose as much as 1.3 percent, the biggest intraday gain since Sept. 15. It was 1.1 percent higher at 3.6771 per dollar at 4:42 p.m. in Tel Aviv as the greenback weakened against all 16 major currencies tracked by Bloomberg. The yield on the benchmark 5.5 Mimshal Shiklit bond due January 2022 gained five basis points, or 0.05 percentage point, to 4.62 percent at the 4:30 close. The TA-25 Index soared 4.1 percent, the biggest increase since April 2009.
“With the markets correcting, we see investors are exiting from the safehaven of the dollar and moving to other currencies and stocks,” Dror Sachs, chief trader at First International Bank of Israel Ltd. in Tel Aviv, said by phone.
Global stocks rallied after German and French leaders pledged to devise a plan to stem the debt crisis in three weeks. IntercontinentalExchange Inc.’s Dollar Index, which tracks the U.S. currency against those of six major U.S. trading partners including the euro and yen, slumped the most since December.
The Finance Ministry auctioned 1.55 billion shekels ($422 million) of debt today, including 250 million shekels each of the benchmark bonds and five-year notes due in August 2016. The sale of shorter-term bonds was 3.7 times oversubscribed and that of 10-year notes 3.45 times oversubscribed. The five-year notes were sold at an average price of 102.95 compared with 102.56 at last week’s auction.
The yield on inflation-linked bonds due June 2013 rose six basis points to 1.15 percent. The two-year breakeven rate, which reflects market expectations for inflation over the period, jumped nine basis points to 178, implying annual inflation of 1.78 percent. The rate plunged to the lowest since Sept. 15 yesterday after the cabinet approved proposals from a government-appointed panel to address cost of living complaints.
Two-year interest-rate swaps, an indicator of investor expectations for rates over the period, were unchanged at 2.68 percent.
“The Bank of Israel will continue to lower the rate,” David Reznik, a macro analyst at Bank Leumi said by telephone. He predicts another cut this year by 25 basis points and a possible additional quarter percentage point drop in the first quarter of 2012.
Bank of Israel Governor Stanley Fischer’s decision to cut the benchmark interest rate by a quarter point to 3 percent on Sept. 26 wasn’t backed unanimously by central bank officials who gave their recommendations, the central bank said in minutes of the meeting released today.
The Tel-Bond 40 index of corporate bonds gained 0.3 percent.
--Editors: Susan Lerner, Peter Branton
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