Bloomberg News

Israel Bond Yield Surges to Two-Month High After Fischer Resigns

January 30, 2013

Israel’s benchmark government bond yield surged to the highest level in two months after Bank of Israel Governor Stanley Fischer, who has reduced interest rates since 2011, said he will step down in June.

The yield on the 4.25 percent Mimshal Shiklit maturing March 2023 increased five basis points, or 0.05 percentage point, to 4.14 percent, the highest level since Nov. 25, at 11:18 a.m. in Tel Aviv. The yield jumped eight basis points after the announcement yesterday. The shekel was little changed today, while the benchmark TA-25 index gained 0.1 percent.

Fischer, governor since 2005, said he will leave in the middle of his second term. The central bank left its benchmark interest rate unchanged at 1.75 percent on Jan. 28 after a surprise cut the previous month that brought the rate to the lowest in more than two years. The regulator has gradually reduced the borrowing rate from 3.25 percent in 2011 to shore up the economy amid the European debt crisis.

The market reaction is “mainly due to the fear that the accommodative monetary policy, held during Fischer’s term will be changed,” Modi Shafrir, chief economist at Tel-Aviv-based I.L.S. Brokers, wrote in an e-mailed note yesterday. “One should still remember that since November 2011 the local rate decision is conducted by the Monetary Policy Committee and it seems that the majority of members still hold a relatively dovish attitude.”

Budget Deficit

Fischer said at a press conference this morning in Jerusalem that one of his primary goals was passing a new Bank of Israel law that established a monetary committee to set interest rates, rather than relying only on the governor. His resignation came a week after voters gave Benjamin Netanyahu the chance to serve a third term as prime minister with a weaker mandate than four years ago.

The central banker said last year that it was a priority for the next government to reduce the budget deficit. Israel posted a gap of 39 billion shekels ($10.5 billion) for 2012, or 4.2 percent of gross domestic product, the Finance Ministry said on Jan. 13.

The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, lost 0.2 percent to 281.21.

To contact the reporter on this story: Shoshanna Solomon in Tel Aviv at ssolomon22@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net


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