Bloomberg News

Shekel Drops to 7-Week Low on Mideast Tension, European Growth

November 24, 2011

Nov. 23 (Bloomberg) -- The shekel fell to the lowest level in seven weeks and the yield on Israel’s benchmark bonds climbed to the highest in a month as demand for riskier assets waned amid turmoil in Egypt and concern about European growth.

The shekel touched 3.7704 a dollar, the lowest since Oct. 4, and was down 0.6 percent at 3.7682 at 5 p.m. in Tel Aviv as the greenback strengthened against 15 of 16 major currencies tracked by Bloomberg. The yield on the 5.5 percent notes due January 2022 rose three basis points, or 0.03 percentage point, to 4.69 percent at the 4:30 p.m. close, matching the Oct. 24 high.

“Investors are turning away from the risk associated with the shekel as Egypt tension is increasing geopolitical risk in the region,” Eytan Admoni, head of the international department at Bank of Jerusalem Ltd., said by telephone. “The local currency is also weakening as the dollar is gaining around the world on concern about the crisis in Europe.”

Clashes in Egypt have left at least 35 people dead in the past week, marking some of the most pronounced violence since the uprising early this year and threatening to disrupt parliamentary elections due to start next week. The leader of the Muslim Brotherhood in May called for the country’s next parliament to review the Camp David peace accord with Israel.

Reports today showed European services and manufacturing output contracted for a third month in November, while September industrial orders declined the most in three years. Israel’s Finance Minister Yuval Steinitz said Nov. 10 that exports, which make up about 40 percent of the economy, have been hurt by the European debt crisis.

Slowing Growth

Israel’s growth may slow to about 4 percent in 2012 from an expected 4.8 percent this year, the Finance Ministry said Oct. 31. Exports make up about 40 percent of the country’s economy.

The index of leading economic indicators index rose a preliminary 0.1 percent in October after a 0.3 percent September increase, the Bank of Israel said today. Central bank Governor Stanley Fischer said today the government should guard against a sudden drop in housing prices.

The index’s reading along with Fischer’s comments “supports our interest rate forecast cut of 25 basis points to 2.75 percent by year-end,” Tevfik Aksoy, Morgan Stanley’s London-based chief economist for the region, wrote in an e- mailed statement today.

Evenly Split

Two-year interest-rate swaps, an indicator of investor expectations for rates over the period, dropped four basis points to 2.68 percent. Analysts in an Oct. 28 Bloomberg survey were evenly split about the course the bank will take at its Nov. 28 meeting, with five predicting a cut to 2.75 percent and the other five expecting no change.

The yield on inflation-linked bonds due June 2013 declined four basis points to 0.72 percent, the lowest since June 14. The two-year breakeven rate, the yield difference between the inflation-linked bond and fixed-rate government bonds of similar maturity, rose less than one basis point to 200. That implies an average annual inflation rate of 2 percent.

The Tel-Bond 40 index of corporate bonds fell less than 0.1 percent.

--Editors: Susan Lerner, Shanthy Nambiar

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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