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Israel CPI Yield Gains Most in 2 Weeks on Bets Inflation to Slow

November 08, 2012

Israel’s six-year consumer price- linked government bonds fell, pushing the yield up the most in two weeks, on investor bets inflation will moderate in the coming months as economic growth slows.

The yield on the 3.5 percent consumer price-linked notes due August 2018 rose two basis points, or 0.02 percentage point, the biggest gain since Oct. 25, to 0.504 percent at the 4:30 p.m. close in Tel Aviv. The two-year break-even rate, the yield difference between the inflation-linked bond and fixed-rate government bonds of similar maturity, dropped one basis point to 222, implying an average annual inflation rate of 2.17 percent. The rate fell 16 basis points this week.

Inflation accelerated to 2.1 percent in September, less than forecast, from 1.9 percent the previous month, the Central Bureau of Statistics reported Oct. 15. Consumer prices will probably rise 2 percent in the next 12 months, according to a Bank of Israel survey on Oct. 17, compared with 2.6 percent in September. October figures are scheduled to be released Nov. 15.

“Inflation expectations are falling on expectations that economic growth will slow and as commodity prices are declining,” said Alex Zabezhinsky, chief economist at DS Securities & Investments Ltd. in Tel Aviv. “In this environment, investors are selling consumer price-linked bonds and are preferring non-linked government bonds.”

Slowing Growth

The yield on the 5.5 percent benchmark Mimshal Shiklit bonds due January 2022 was unchanged at 3.92 percent. The rate is down six basis points this month. The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, declined 0.1 percent to 278.25.

The Bank of Israel last month cut its benchmark interest rate to a 22-month low to spur the economy as global growth slows. Exports make up about 40 percent of Israeli gross domestic product.

Economic growth is set to fall to 3.5 percent this year, from 4.6 percent last year, according to forecasts of the Central Bureau of Statistics. The government reduced the price of gasoline for November by 4.5 percent.

The shekel gained for a second time this week, strengthening 0.1 percent to 3.8956 a dollar at 4:59 p.m. One- year interest rate swaps, an indicator of investor expectations for rates over the period, increased two basis points to 1.91 percent.

To contact the reporter on this story: Sharon Wrobel in Tel Aviv at

To contact the editor responsible for this story: Alaa Shahine at

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