Bloomberg News

Israel Inflation-Linked Bonds Rise on Electric, Gasoline Prices

October 26, 2011

Oct. 26 (Bloomberg) -- Israeli consumer-price linked bonds rose, pushing yields to the lowest level in almost seven weeks, on investors’ bets inflation will accelerate as gasoline and electricity costs climb.

The yield on inflation-linked notes maturing in June 2013 dropped six basis points, or 0.06 percentage point, to 0.9 percent at the 4:30 p.m. close in Tel Aviv, the lowest since Sept. 8. The two-year breakeven rate, the yield difference between the inflation linked bond and fixed-rate government bonds of similar maturity, increased seven basis points to 195, the highest this month. That implies an average annual inflation rate of 1.95 percent over the period.

“Gasoline and electricity prices are expected to rise at the end of the month as oil prices around the world advance,” Alex Zabezhinsky, chief economist at DS Securities & Investments Ltd. in Tel Aviv, said by telephone. “The rise in these costs is expected to fuel inflationary pressure.”

Gasoline prices may climb as much as 3 percent next month as crude oil trades near its highest in 12 weeks, Zabezhinsky said. Crude oil has risen 15 percent this month to about $90 a barrel. Electricity prices will increase 4.7 percent on Nov. 1, the Public Utility Authority said yesterday in a statement posted on its Web site.

Target Range

Inflation slowed to 2.9 percent in September, as social protests helped push down costs, bringing the annual inflation rate within the government’s target range of 1 percent to 3 percent for the first time this year.

“The wave of social protests in recent months has helped to bring down some prices but the majority of the impact has already been felt,” Zabezhinsky said.

Prime Minister Benjamin Netanyahu’s Cabinet approved a program on Oct. 9 that aims to ease the cost of living after rallies brought hundreds of thousands of protesters to the streets. Osem Investments Ltd., the foodmaker controlled by Nestle SA, said this week it will lower the prices of 35 products by as much as 10 percent on Nov. 1. The move follows price cuts this month from dairy producers Tnuva Food Industries Agricultural Co-Op in Israel Ltd. and Strauss Group Ltd.

Lower Unemployment

Israel’s unemployment rate declined to 5.6 percent in August from a revised 5.7 percent a month earlier as the economy expanded, the Central Bureau of Statistics said today. The index of leading economic indicators rose a preliminary 0.3 percent in September, the Bank of Israel said today. The economy will grow 4.7 percent this year and 3.2 percent in 2012, the central bank predicted last month.

“We might not see unemployment move lower in coming months as it is already relatively low, while the global economy is slowing.” Amir Kahanovich, chief economist at Clal Investment Management Ltd. In Tel Aviv, said by phone. Because the figure is backward looking it’s not affecting the market, he said.

The yield on the benchmark 5.5 Mimshal Shiklit bond due January 2022 dropped three basis points to 4.63 percent. Two- year interest rate swaps, an indicator of investor expectations for the benchmark in the next two years, fell four basis points to 2.79 percent.

The shekel slipped 0.1 percent to 3.6572 a dollar at 5:07 p.m. The Tel-Bond 40 Index of corporate bonds rose 0.3 percent.

--Editors: Susan Lerner, Claudia Maedler

To contact the reporter on this story: Sharon Wrobel in Tel Aviv at swrobel4@bloomberg.net

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


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