Israel’s one-year interest-rate swaps fell to the lowest level in more than three months and government bonds rose on speculation slowing economic growth will prompt the central bank to lower borrowing costs.
The contracts, an indicator of investor expectations for the benchmark interest rate in the next 12 months, dropped one basis point, or 0.01 percentage point, to 2.39 percent, at 2:41 p.m. in Tel Aviv, matching the low on Feb. 15. The rate retreated 21 basis points this month. The yield on the 4.25 percent Mimshal Shiklit notes due August 2016 declined one basis point to 3.32 percent, the lowest on record.
The economy grew an annualized 3 percent in the first quarter, the slowest pace since the three months ended June 2009, the Jerusalem-based Central Bureau of Statistics said today. The median estimate in a Bloomberg survey of 11 economists was 2.5 percent. The Bank of Israel, which held the benchmark interest rate at 2.5 percent for a third month on April 23, will meet to set monetary policy on May 28.
“The growth figure was better than anticipated but there is still a slowdown in the economy,” said Amir Haik, chief economist at Union Bank of Israel (UNON) Ltd. in Tel Aviv. “A deterioration in the eurozone economy will impact the country’s exports and may prompt the Bank of Israel to lower interest rates in the coming months.”
Greece called a new election yesterday after its political parties failed to form a governing coalition in the aftermath of the inconclusive May 6 vote, raising concern the country will leave the euro. Economic growth in Israel, which exports almost 60 percent of its goods to the euro region and the U.S., is expected to slow to 3.1 percent this year from 4.8 percent in 2011, according to central bank estimates.
Rafael Gozlan, chief economist at I.B.I.-Israel Brokerage & Investments Ltd. in Tel Aviv, reduced his inflation forecast to 1.8 percent in the next 12 months from 2.4 percent, according to an e-mailed report today.
The one-year break-even rate, the yield difference between inflation-linked bonds and fixed-rate government bonds of similar maturity, fell seven basis points to 220, implying an average annual inflation rate of 2.20 percent, the lowest in more than three months.
The shekel was little changed at 3.8335 a dollar. The Tel Aviv Bond 40 Index, a measure of inflation-linked and fixed-rate corporate bonds, dropped 0.5 percent to 262.03, the lowest level since Jan. 30.
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