Bloomberg News

Israel’s 2022 Bond Snaps Three-Day Gain on Europe Debt Risk

November 18, 2011

Nov. 17 (Bloomberg) -- Israel’s benchmark notes dropped for the first time in four days as rising borrowing costs in Europe fueled concern the region’s leaders will fail to contain the debt crisis.

The yield on the 5.5 percent bond due in January 2022 rose one basis point, or 0.01 percentage point, to 4.63 percent at 12 p.m. in Tel Aviv. Spanish 10-year bonds declined, pushing the yield to the highest level since the euro was created in 1999, as rates rose at an auction of notes due in 2022.

“Investors are sitting on the fence after yesterday’s volatile trading day,” Oren Ossad, a trader at Excellence Nessuah Investment House Ltd. in Ramat Gan, Israel, said in e- mailed response.

The European Central Bank bought Italian and Spanish bonds to cap yields yesterday, according to people with knowledge of the trades who declined to be identified. Israel’s central bank on Sept. 22 cut its growth forecast for this year to 4.7 percent and to 3.2 percent for 2012, citing the global economy and a decline in the rate of growth in world trade.

The shekel retreated 0.2 percent to 3.7299 against the dollar. The currency has weakened 2.5 percent in the past one month. Two-year interest-rate swaps, an indicator of investor expectations for rates over the period, increased for a second day, gaining three basis points to 2.73 percent.

Annual inflation in the country eased to 2.7 percent in October from 2.9 percent in September, the statistics bureau said Nov. 15, the second month the rate was within the government’s 1 percent to 3 percent target range. The yield on inflation-linked bonds due June 2013 fell two basis points to 0.85 percent.

The two-year breakeven rate, the yield difference between the inflation-linked bond and fixed-rate government bonds of similar maturity, rose five basis points to 191, implying an average annual inflation rate of 1.91 percent.

The Tel Aviv Bond 40 Index, a measure of inflation-linked and fixed-rate corporate bonds, rose 0.2 percent.

--Editors: Shanthy Nambiar, Ash Kumar

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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