Israel’s benchmark government bond yields rose to the highest in almost three months as a rise in global yields stoked bets the Bank of Israel will leave interest rates at a three-year low next week.
The yield on the 4.25 percent notes due March 2023 jumped 11 basis points, or 0.11 percentage point, to 3.90 percent, matching the April 3 high, at 2:04 p.m. in Tel Aviv. The shekel weakened 0.6 percent to 3.6291 a dollar, poised for the lowest settlement since June 10.
The U.S. Federal Reserve said yesterday it’s ready to slow its $85 billion in monthly bond buying later this year as long as the world’s largest economy performs in line with its forecasts. That sent U.S. 10-year yields up the most since 2011, sparking a global sell-off in fixed-income securities. Israel relies on exports to markets, including the U.S., for 40 percent of gross domestic product. The Bank of Israel last month cut its lending rate to a three-year low to narrow the rate differential with major economies and moderate shekel gains.
“The Fed’s more optimistic stance on the U.S. economy is also pushing Israeli yields up today tracking their U.S. counterpart,” Modi Shafrir, chief economist for I.L.S. Brokers Ltd. in Tel Aviv, said by phone. “On the back of the global rise in yields and a relative stable shekel, the central bank is likely to postpone another rate cut despite recent negative economic data.”
Led by Governor Stanley Fischer, the central bank gradually cut the benchmark rate from 3.25 percent in 2011 to 1.25 percent to spur growth and last month announced a program to buy foreign currency, citing shekel appreciation and the downward revision in global growth forecasts. Israel’s currency has gained 3 percent this year, the best performer among 31 major currencies tracked by Bloomberg.
The central bank will probably leave borrowing costs at 1.25 percent at its meeting on June 24, according to 10 out of 15 analysts surveyed by Bloomberg this month. The remainder expect an interest-rate cut of 25 basis points. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, increased for a third day, soaring seven basis points to 1.27 percent.
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