Israel’s short-term government bonds fell, lifting the yield the most in two weeks, on bets the central bank will leave borrowing costs on hold for a third month as energy costs spur inflation.
The yield on the 3.5 percent notes due September 2013 climbed four basis points, or 0.04 percentage point, to 2.66 percent at 1:25 p.m. in Tel Aviv. Shorter-term notes are typically more sensitive to rate fluctuations. The two-year break-even rate, the yield difference between inflation-linked bonds and fixed-rate government bonds of similar maturity, rose four basis points to 299. That implies an average annual inflation rate of 2.99 percent.
Israeli consumer prices are expected to rise by 2.5 percent in the next 12 months, according to a survey of economists released by the Bank of Israel today. Prices gained for the first time in five months in March, advancing 0.4 percent from February, the statistics bureau said this week. The central bank will keep the benchmark interest rate at 2.5 percent on April 23, according to all 16 economists in a Bloomberg survey.
“Inflation expectations are expected to increase in coming months amid rising energy prices which is pushing government bonds lower,” said Effi Cohen, a bond trader at Leader Capital Markets (LDRC) Ltd. in Tel Aviv. “The market is pricing in that the central bank will pause on interest rates and start to raise rates in coming 12 months.”
Electricity prices will rise 8.9 percent, the Public Utilities Authority said in a March 25 statement on its website. Israel’s purchasing managers index rose to 46.3 in March from 44.5 in the previous month, Bank Hapoalim Ltd. said today. The economy grew an annualized 3.4 percent in the fourth quarter, faster than the 3.2 percent previously estimated, the statistics bureau said yesterday.
The yield on the benchmark 5.5 percent bonds due January 2022 rose two basis points to 4.65 percent. One-year interest- rate swaps, an indicator of investor expectations for rates over the period, increased for a fourth day, advancing one basis point to 2.58 percent.
The Tel-Bond 40 index of corporate bonds gained 0.2 percent to 266.56. The shekel weakened 0.2 percent to 3.7561 a dollar.
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