Bloomberg News

Israel CPI Bond Yield Drops to 14-Month Low on Inflation Report

February 17, 2012

Feb. 16 (Bloomberg) -- Israeli inflation-linked bonds rose, pushing the yield to the lowest level in more than 14 months, after a report showed consumer prices in January increased more than expected as rents and energy costs climbed.

The yield on the CPI-linked bonds due in June 2013 dropped 13 basis points, or 0.13 percentage point, to 0.08 percent, the lowest level since December 2010, at the 4:30 p.m. close in Tel Aviv. The one-year break-even rate, which reflects market expectations for inflation over the period, rose 11 basis points to 240, the highest since Aug. 15. That implies an average annual inflation rate of 2.4 percent.

Consumer prices rose an annual 2 percent compared with a 2.2 percent gain in December, the Central Bureau of Statistics said late yesterday. The median estimate in a Bloomberg survey of 12 economists was 1.9 percent. Prices were unchanged month on month versus the median estimate for a 0.2 percent decline in a Bloomberg survey of 10 economists.

“The higher-than-forecast January index was mainly a result of increases in rental prices and energy costs,” said Uriel Goren, head of the international clients desk at Tel Aviv- based DS Securities & Investments. DS Securities, which raised its 12-month inflation estimate to 2 percent from 1.8 percent, forecasts consumer prices to rise 0.1 percent in February and 0.2 percent in March, Goren said.

The yield on the 5.5 percent bond due in January 2022 was unchanged at 4.56 percent. The rate increased four basis points in the last five trading days.

Slowing Economic Growth

Israel’s economy expanded an annualized 3.2 percent in the fourth quarter compared with a revised 3.8 percent in the third quarter as exports and private consumption declined amid the European debt crisis, the statistics bureau said today. The median estimate in a Bloomberg survey of seven economists was 3 percent.

One-year interest-rate swaps, an indicator of investor expectations for rates over the period, rose two basis points to 2.41 percent. The Bank of Israel cut its benchmark interest rate by a quarter-point last month to 2.5 percent, the third reduction in five months, saying that the European crisis remains a threat. About 40 percent of the nation’s economy is based on exports, with Europe and the U.S. being the largest markets.

The shekel weakened 0.4 percent to 3.7688 a dollar at 5:02 p.m. in Tel Aviv. The Tel-Bond 40 Index of corporate bonds gained 0.1 percent to 263.42.

--Editors: Claudia Maedler, Daliah Merzaban

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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