Bloomberg News

Israel Bond Yield Rises to 2-Month High as Trade Deficit Widens

February 13, 2012

Feb. 12 (Bloomberg) -- Israel’s benchmark bonds fell, pushing yields to the highest in almost two months as trading resumed after a general strike and the country posted its widest trade deficit since at least 1995.

The yield on the 5.5 percent Mimshal Shiklit government bonds due January 2022 rose six basis points, or 0.06 percentage point, to 4.58 percent at the 5 p.m. close in Tel Aviv, matching the level on Dec. 18. Israel’s local financial markets opened for trading today for the first time since Feb. 7 after a closure due to a general strike.

A drop in exports led the trade deficit, excluding polished diamonds, ships and aircraft, to widen to a seasonally adjusted $2.19 billion from $1.33 billion the previous month, the statistics bureau said. Exports fell 6.3 percent in January compared with a 0.2 percent decline a month earlier. In Greece, Prime Minister Lucas Papademos appealed to citizens yesterday to support deep budget cuts to win a second aid package. The cost of insuring European sovereign debt soared last week.

“The market is catching up with trading in global markets after being closed for two days,” said Sagie Poznerson, head of trading at Leader Capital Markets Ltd. in Tel Aviv. “Yields are on a rising trend as there is still much uncertainty about the European debt crisis which is affecting Israeli exports and economic growth.”

Slower Growth

Economic growth slowed in the second half of 2011 to 3 percent from 4 percent in the first six months of the year, the Bank of Israel said today. The central bank and the finance ministry have reduced their growth forecasts for this year, citing the impact of the European debt crisis. Exports comprise about 40 percent of Israel’s gross domestic product, with Europe and the U.S. the biggest trading partners.

The yield on the CPI-linked bonds due June 2013 rose one basis point to 0.25 percent. The one-year break-even rate, the yield difference between inflation-linked bonds and fixed-rate government notes of similar maturity, increased five basis points to 225, the highest in two months, implying an average annual inflation rate of 2.25 percent.

Israeli funds raised a net 629 million shekels ($169 million) so far this month as investments increased at the fastest pace in 13 months, Meitav Investment House Ltd. said today.

The Tel-Bond 40 Index of corporate bonds dropped 0.2 percent to 263.43. Two-year interest-rate swaps, an indicator of investor expectations for rates in the period, fell one basis point to 2.65 percent on Feb. 10. The Bank of Israel, which cut the benchmark lending rate to 2.5 percent on Jan. 23, is willing to make further interest rate cuts if growth slows, Governor Stanley Fischer said Jan. 26.

The shekel weakened 0.4 percent to 3.7211 against the dollar on Feb. 10.

--Editors: Daliah Merzaban, Jonas Bergman

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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