Israel’s benchmarks bonds fell, pushing yields to the highest in more than two months, on concern that tension between Iran and the West may boost energy costs and fuel inflationary pressures.
The yield on the benchmark 5.5 percent bonds due January 2022 rose two basis points, or 0.02 percentage point, to 4.68 percent, the highest since Dec. 14, at 11:48 a.m. in Tel Aviv. The one-year break-even rate, the yield difference between the inflation-linked bond and fixed-rate government bonds of similar maturity, fell four basis points to 273, implying an average annual inflation rate of 2.73 percent. The index jumped 69 basis points last month.
Israeli Prime Minister Benjamin Netanyahu will meet with U.S. President Barack Obama next week to discuss Iran’s possible pursuit of nuclear weapons. Israel raised the price of gasoline for March by 5.1 percent, according to a Ministry of Energy and Water Resources statement yesterday, following a 3.2 percent gain last month.
“The mounting threat of Iran and the risk of increasing oil prices is fueling inflation expectations,” said Gil Chen , a bond trader at I.B.I.-Israel Brokerage & Investments Ltd. in Tel Aviv. “Investors are shortening positions selling long-term bonds to reduce risk exposure.”
Brent crude, benchmark for more than half the world’s oil, rose 0.5 percent to $123.28 a barrel today, having climbed to a 10-month high on Feb. 24. U.S. oil prices rose 0.2 percent today to $107.28 a barrel.
Consumer prices climbed an annual 2 percent in January, beating the median 1.9 percent estimate of economists. Inflation may reach 2.4 percent in the next 12 months, according to a survey of economists released by the Bank of Israel on Feb. 19. Accelerating inflation erodes the value of fixed-income securities.
One-year interest rate swaps, an indicator of investor expectations for rates over the period, gained two basis points to 2.49 percent. The central bank’s monetary committee, led by Governor Stanley Fischer, left the benchmark lending rate for March unchanged at 2.5 percent last month.
The Tel-Bond 40 (TEL-B40) index of corporate bonds was little changed at 263.90. The shekel strengthened 0.1 percent to 3.7792 a dollar.
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