Bloomberg News

Israeli Inflation-Linked Bonds Drop as Prices Enter Target Range

October 16, 2011

Oct. 16 (Bloomberg) -- Israeli inflation-linked bonds dropped, pushing yields to the highest level in more than a month after annual inflation fell to within the government’s 1 percent to 3 percent target range for the first time this year.

The yield on inflation-linked bonds due June 2014 rose two basis points, or 0.02 percentage point, to 1.26 percent at the 2:45 p.m. close in Tel Aviv, the highest since Sept. 15. Annual inflation slowed to 2.9 percent from 3.4 percent in September, the Central Bureau of Statistics said Oct. 14, below the 3.2 percent median estimate of 18 economists in a Bloomberg survey.

“Because the consumer price index was lower than expected, people are selling inflation-linked bonds and instead are buying shares and corporate bonds,” Oren Ossad, a bond trader at Excellence Nessuah Investment House Ltd. in Ramat Gan, Israel, said by telephone.

Food prices declined 1.3 percent last month as consumer demonstrations and boycotts that started in June over the cost of cottage cheese accelerated. Tnuva Food Industries Agricultural Co-Op In Israel Ltd., which controls about 70 percent of the dairy market, and Strauss Group Ltd., which derives about a fifth of its revenue from milk products, have announced price cuts this month.

Plunging Yields

The Tel-Bond 40 index of corporate bonds climbed 0.9 percent to the highest since Aug. 4. The TA-25 index of the country’s largest companies jumped 4.3 percent, the most since April 2009.

The yield on IDB Development Corp.’s 4.5 percent bond due in 2018, dropped two percentage points to 8.25 percent, the lowest since Sept. 27. Discount Investment Corp.’s bond maturing in 2018 soared, pushing the yield down 79 basis points to 6.87 percent, the lowest since Sept. 4. IDB owns 73.51 percent of Shufersal, according to Bloomberg data.

Discount Investment agreed to sell its 46 percent stake in Shufersal Ltd., Israel’s largest supermarket chain for 2.42 billion shekels ($662 million) or 24.18 shekels a share, payable over five years.

Discount Investment “is receiving a substantial sum that will help service debt across the group,” Guil Bashan, an analyst at I.B.I.-Israel Brokerage & Investments Ltd. in Tel Aviv, wrote in an e-mailed note today. The 650 million shekels in cash it receives at closing “will give it plenty of breathing space -- at least for the time being.”

The yield on the benchmark 5.5 Mimshal Shiklit bond due January 2022 rose two basis points to 4.68 percent, the highest since Sept 26.

The shekel was little changed at 3.6559 per dollar and two- year interest-rate swaps, an indicator of investor expectations for rates over the period, were unchanged at 2.76 percent on Oct. 14.

--Editors: Susan Lerner, Digby Lidstone

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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