Bloomberg News

Israel Bonds Gain as Strike Threat Increases Risk

November 07, 2011

(Corrects to remove reference to stocks from headline.)

Nov. 6 (Bloomberg) -- Israel’s benchmark government bond rose, pushing the yield to the lowest level in a month, as the threat of a possible general strike tomorrow boosted demand for safer assets.

The yield on the 5.5 percent Mimshal Shiklit bond due in January 2022 dropped three basis points, or 0.03 percentage point, to 4.53 percent at the 4:30 p.m. close in Tel Aviv, matching the level on Oct. 5. The Tel-Bond 40 Index of corporate bonds slipped 0.1 percent.

“Investors are reluctant to take positions today on concern of a possible strike tomorrow,” Ehud Itzhakov, a bond trader at Bank Hapoalim Ltd. in Tel Aviv, said by telephone. “In addition, the decline in world markets is pushing investors to safer assets.”

Histadrut Labor Federation Chairman Ofer Eini said today there was “no breakthrough” in overnight talks between the union and Finance Ministry officials to prevent a general strike tomorrow that threatens to close down services including airports, sea ports, banks and the Tel Aviv Stock Exchange.

U.S. and European stocks saw their first weekly declines since September as Greece’s reluctance to accept another bailout and a disagreement over boosting the International Monetary Fund’s resources threatened Europe’s efforts to halt its debt crisis.

Investors stepped up redemptions from Israeli funds in the first three days of November withdrawing a net 30 million shekels ($8.2 million) from Israeli funds as “volatility in the stock market renewed investor uncertainty,” Meitav Investment House Ltd. said today in a report. Drawdowns in October were the lowest since March, according to Meitav.

Europe Risk

“The biggest and significant risk comes from Europe and the difficulty of its leaders to provide a real and deep solution to the problems of European countries,” Gil Dattner, an equity analyst at Bank Leumi Le-Israel Ltd. in Tel Aviv, said by telephone. “We don’t think there is going to be a major impact on the markets from the strike, but it contributes to the negative sentiment in Israel due to the geopolitical situation and from international markets.”

Exports make up about 40 percent of Israel’s economy, with the U.S. and Europe being the largest markets. Bank Hapoalim Ltd. last week cut its 2012 Israel-growth forecast to 3 percent from 3.5 percent, predicting the budget deficit may reach 4 percent of gross domestic product next year.

Yield Decline

“The Israeli bond market will be positively influenced by expectations of a slowdown in economic activity and further interest rate cuts,” Shuki Arditi, a bond trader at Leader Capital Markets Ltd. in Tel Aviv, said by telephone. “There is a potential for a yield decline of 30 to 40 basis points in the benchmark bond in the coming weeks.”

The Bank of Israel left its benchmark lending rate for November at 3 percent following a 25 basis point cut the previous month, saying it has “room to respond” to events in the global and local economies. Ten analysts in a Bloomberg survey on Oct. 28 were evenly split about the course the Bank of Israel will take at its next meeting on Nov. 28 with five predicting a cut to 2.75 percent and five expecting no change to the rate.

Two-year interest rate swaps, an indicator of investor expectations for the benchmark rate in the next two years, rose one basis point to 2.76 percent on Nov. 4.

The yield on consumer price-linked notes due June 2013 retreated three basis points to 0.93 percent. The two-year breakeven rate, the yield difference between the inflation linked bond and fixed-rate government bonds of similar maturity increased six basis points to 190. That implies an average annual inflation rate of 1.9 percent over the period.

The shekel weakened 0.4 percent to 3.6747 per dollar on Nov. 4.

--Editors: Susan Lerner, Louis Meixler

To contact the reporters on this story: Sharon Wrobel in Tel Aviv at; Shoshanna Solomon in Tel Aviv at

To contact the editor responsible for this story: Claudia Maedler at

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