Bloomberg News

Israeli Bonds Climb to 3-Week High on EU Crisis Pact, Debt Sale

November 01, 2011

Oct. 31 (Bloomberg) -- Israel’s benchmark bond rose to the highest level in more than three weeks and the shekel weakened after a debt sale and on concern an accord last week won’t be enough to contain Europe’s debt crisis.

The yield on the 5.5 percent bond due in January 2022 fell for the first time in three days, declining four basis points, or 0.04 percentage point, to 4.62 percent at the close in Tel Aviv, matching the level on Oct. 10. The shekel retreated 0.4 percent against the dollar to 3.6025 at 5:09 p.m. in Tel Aviv, trimming the increase this month to 4 percent, poised for its biggest monthly gain since March. The greenback rose against all of 16 major currencies tracked by Bloomberg. The TA-25 Index slumped to the lowest in almost two weeks.

“The euphoria we saw following the breakthrough of the European debt pact is lessening as investors are starting to question the effectiveness,” Assaf Rosenberg, head of fixed- income sales at Excellence Nessuah Investment House Ltd. in Ramat Gan, Israel, said by telephone. “The Finance Ministry’s auction benefited from the negative sentiment in the market, which is driving investors’ demand for safer assets.”

Europe’s largest banks may raise just a tenth of the total capital shortfall estimated by regulators, fueling concern policy makers’ plans to bolster the regions lenders could fail. European Union leaders last week agreed to increase the region’s rescue fund capacity to 1 trillion euros ($1.4 trillion) and persuaded holders of Greek bonds to accept a 50 percent writedown on the country’s debt.

Auction Demand

Israel’s Finance Ministry auctioned 1.55 billion shekels ($430 million) of debt today, including 250 million shekels of the benchmark bond, the sale of which was 9.7 times oversubscribed compared with 5 times last week. Demand for 3.5 percent notes due August 2014 was 7.6 times the 350 million shekels offered compared with 4 times last week, according to data from the ministry posted on Bloomberg.

The Tel-Bond 40 index of corporate bonds dropped for a second day, declining 0.3 percent. Bank Hapoalim Ltd., Israel’s second-largest bank by assets, may raise as much as 1 billion shekels from a sale of deferred notes rated ilAA by Standard & Poor’s Maalot this week, Clal Finance Brokerage Ltd. said today. Bank Leumi Le-Israel Ltd., the country’s largest lender, said it is planning to sell deferred notes next week.

The two-year breakeven rate, which reflects market expectations for inflation over the period, fell for a second day, retreating three basis points to 188, implying an average annual inflation rate of 1.88 percent. The yield on inflation- linked bonds due June 2013 fell one basis point to 0.96 percent.

Raising Taxes

The cabinet late yesterday approved a plan that will raise taxes on companies and the wealthy while easing the burden on the middle class, following mass street protests over the high cost of living. The higher revenue will help fund the cancellation of a planned increase in the gasoline tax, the removal of import duties on products that aren’t also made locally and the lowering of the purchase tax on some items.

Two-year interest-rate swaps, an indicator of investor expectations for rates over the period, dropped for the first time in three days, falling three basis points to 2.82 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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