Bloomberg News

Israel Bonds Gain on Bets Post-Fischer Policy to Support Economy

January 31, 2013

Israel’s benchmark government bonds rose, sending the yield lower for the first time in five days, on bets central bank policy will continue to support the economy once Stanley Fischer steps down as governor.

The yield on the 4.25 percent Mimshal Shiklit notes maturing in March 2023 dropped one basis point, or 0.01 percentage point, to 4.09 percent at the close in Tel Aviv, the lowest level since since Jan. 29, when Fischer announced his early resignation. The yield jumped eight basis points on Jan. 29 on the news, triggering concern that Fischer’s policies, which helped the economy recover from the global financial crisis, may be interrupted.

“There was some sort of panic after the announcement and now the market has balanced out,” Yshai Shilo, a bond trader at I.B.I.-Israel Brokerage & Investments Ltd. said today by phone from Tel Aviv. “Investors understand that the bank is in good hands and there are suitable candidates to replace him.”

Fischer, who has led the central bank since 2005, said yesterday there are several good candidates to take his job when he leaves in June. The shekel strengthened for the first time in five days, gaining 0.2 percent to 3.7216 a dollar, taking its advance this month to 0.3 percent, according to prices compiled by Bloomberg.

Two-year interest-rate swaps, a reflection of investor expectations for rates, also dropped for the first time in three days, declining four basis points to 1.87 percent. Under Fischer’s lead, the central bank’s monetary policy committee gradually lowered the key interest rate by 1.5 percentage points since 2011 to 1.75 percent to spur the economy, which has suffered from the fallout of the European debt crisis.

Supporting Growth

Israel gets about 40 percent of gross domestic product from exports, and the U.S. and Europe are key destinations for its products. Economic growth slowed to 3.3 percent last year from 4.6 percent in 2011, according to statistics bureau data.

Israel’s unemployment rate was 6.9 percent in 2012 and rose to 6.9 percent in December from a revised November rate of 6.8 percent, the statistics bureau said today. Annual inflation in December was 1.6 percent, within the central bank’s target range of 1 percent to 3 percent.

Consumer price rises may average 2.23 percent in the next two years, according to the two-year break-even rate. The rate, which reflects the yield difference between the inflation-linked bonds and similar-maturity fixed-rate government debt, rose for a third day, adding five basis points to 223.

The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, advanced 0.1 percent to 281.84 today.

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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