Bloomberg News

Israel 2022 Bond Drops as Spain Bailout Bets Temper Demand

June 10, 2012

Israel’s government bonds dropped, pushing yields to the highest level in more than two weeks, after investor optimism about a bailout for Spain tempered demand for safer assets.

The yield on the 5.5 Mimshal Shiklit notes due January 2022 climbed two basis points, or 0.02 percentage point, to 4.45 percent at the 4:30 p.m. close in Tel Aviv, matching the level on May 24. The Tel Aviv Bond 40 Index of corporate bonds increased 0.2 percent to 265.69, the highest since May 6. The TA-25 Index (TA-25) of stocks rose 0.5 percent.

Euro-area finance ministers were asked to support the rescue of Spain’s banking system with a request for as much as 100 billion euros ($125 billion). European officials have struggled to control a debt crisis that started in Greece at the end of 2009 and has now spread to the euro region’s fourth- largest economy. About 40 percent of Israel’s gross domestic product is made up of exports, with Europe and the U.S. the largest markets.

“Investors are selling government bonds and are buying stocks as optimism that European decision-makers are taking steps is bolstering risk demand,” said Dror Waserman, a bond trader at Clal Finance Brokerage Ltd. in Tel Aviv. “Demand for local government debt is also reduced as investors await the bond auction tomorrow.”

Bond Sale

Israel’s Finance Ministry is planning to sell a combined 2.05 billion shekels ($529 million) at a bond auction tomorrow, including 300 million shekels of the benchmark notes.

The two-year break-even rate, the yield difference between inflation-linked bonds and fixed-rate government bonds of similar maturity, rose six basis points to 246. That implies an average annual inflation rate of 2.46 percent.

Israel must maintain budgetary discipline and is aiming for a “reasonable” deficit, Finance Minister Yuval Steinitz said today. The country is in a “war” to protect its economy in the face of a global crisis and if it found itself in the same position as Spain, “there would be no organization or country to give it 100 billion euro in aid,” Steinitz said.

Foreign direct investment in Israel via domestic banks totaled about $550 million in April, most of which was invested in technology and banking, the Bank of Israel said today. Non- residents’ net investments in Tel Aviv-traded shares in April was $60 million, the central bank said.

One-year interest-rate swaps, an indicator of investor expectations for rates over the period, fell four basis points to 2.21 percent on June 8. The shekel weakened 0.2 percent to 3.8753 a dollar on June 8, trimming the monthly gain to 0.8 percent.

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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