Israeli government bonds rose, pushing yields to the lowest level since the notes were issued, on investor bets the Bank of Israel will reduce the base lending rate in coming months to support economic growth.
The yield on the 5.5 percent benchmark notes due January 2022 fell one basis point, or 0.01 percentage point to 4.44 percent, at 11:30 a.m. in Tel Aviv. Two-year interest-rate swaps, an indicator of investor expectations for rates over the period, which were unchanged at 2.37 percent, dropped 41 basis points this month.
“It is a tough call this month as there is more downside risk from the global economic environment,” said Jonathan Katz, a Jerusalem-based economist for HSBC Holdings Plc. “The central bank may save its ammunition this time to see how Europe’s debt crisis develops and start lowering borrowing costs in the next two months, which is pushing yields lower.”
Economic growth in Israel will slow to 3.1 percent this year from 4.8 percent in 2011, central bank forecasts show. The central bank’s monetary policy committee, led by Governor Stanley Fischer, will hold the rate at 2.5 percent for a fourth consecutive month, according to 22 out of 24 economists surveyed by Bloomberg News. Two predicted a quarter-point cut. The bank will announce its decision at 5:30 p.m. today.
The country could be affected by a deterioration of Europe’s debt crisis amid concern Greece may leave the economic union which accounts for about 35 percent of Israeli exports.
The two-year break-even rate, the yield difference between the inflation-linked bonds and fixed-rate government bonds of similar maturity, increased three basis points to 244. That implies an average annual inflation rate of 2.44 percent over the period.
The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, rose 0.2 percent to 264.33. The shekel gained 0.1 percent to 3.8527 a dollar, trimming this month’s loss to 2.3 percent.
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