Israel’s three-year government bonds rose, pushing the yield to the lowest on record, on bets a slowing economy and a strong shekel will ease inflationary pressures in coming months.
The yield on the 2.5 percent notes due May 2016 fell one basis point, or 0.01 percentage point, to 2.11 percent at 12:34 p.m. in Tel Aviv. The one-year break-even rate, the yield difference between the inflation-linked bonds and similar- maturity fixed-rate government debt, dropped eight basis points to 239, implying average annual inflation of 2.39 percent, within the state’s 1 percent to 3 percent target.
Annual inflation may have eased to 1.4 percent in March from 1.5 percent in the previous month, the first deceleration since November, according to the median estimate of 10 analysts surveyed by Bloomberg. The data will be released on April 15. The government yesterday cut the price of regulated bread by 4.2 percent and lowered gasoline costs for April by 4.8 percent. Economic growth slipped to 2.4 percent in the fourth quarter, the slowest pace in more than three years.
“A slowing economy, decrease in gasoline and other costs are expected to moderate consumer prices in coming months,” said Rafi Gozlan, Tel Aviv-based chief economist at I.B.I.- Israel Brokerage and Investments Ltd. “A strong shekel, which is making imports cheaper, is also having a deflationary effect giving more support of non-consumer price-linked bonds.”
The shekel has gained 2.9 percent this year, the fourth- best performer among an expanded list of 31 currencies tracked by Bloomberg. The yield on the benchmark 4.25 percent notes due in March 2023 was unchanged at 3.77 percent. It fell 11 basis points so far this week.
The Bank of Israel kept its benchmark interest rate at 1.75 percent at the end of last month. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, fell for the first time in three days, retreating one basis point to 1.60 percent.
The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, declined for a third day, retreating 0.1 percent to 285.82.
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