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Israeli Shekel Gains as Bonds Fall on U.S. Fiscal-Cliff Progress

November 29, 2012

Israel’s shekel jumped to the strongest level in more than a month and government bonds fell as investors sought riskier assets amid optimism U.S. lawmakers will reach an agreement to avert the so-called fiscal cliff.

The shekel rose as much as 0.8 percent to 3.8140 per dollar, the strongest intraday level since Oct. 23, before paring to 3.8179 by 4:53 p.m. in Tel Aviv. The U.S. currency weakened against 10 of 16 major currencies tracked by Bloomberg. Yields on 5.5 percent benchmark government bonds due in 2022 rose for the first time since Nov. 21, gaining one basis point, or 0.01 percentage point, to 3.85 percent. They fell 13 basis points this month. The TA-25 Index (TA-25) rose for the fourth time this week.

The dollar index fell for a second day and U.S. Treasuries declined as a Bloomberg Global Poll showed three out of four global investors expect President Barack Obama and congressional leaders to reach a short-term agreement to avert more than $600 billion in spending cuts and tax increases set to come into force on Jan. 1. Exports comprise about 40 percent of Israel’s economic output, and the U.S. is one of its largest markets.

“The shekel is benefiting from positive momentum in global markets and increased appetite for riskier assets,” said Eytan Admoni, head of the international department at Bank of Jerusalem (JBNK) Ltd. “Israel’s economy is still growing at a fairly solid pace while interest rates at 2 percent are relatively high and are also supportive of the shekel.”

‘More Positive’

The shekel has climbed 1.7 percent this month, the second- best performer among an expanded list of 31 major currencies tracked by Bloomberg. The currency’s three-month implied volatility, which reflects traders’ expectations of currency fluctuations over the period, declined five basis points to 7.8 percent, the lowest level since Oct. 23.

Indicators for 2013 are becoming “more positive” and economic growth may surpass the 3 percent forecast, Bank of Israel Governor Stanley Fischer said Nov. 14. Growth is expected to slow to 3.5 percent this year, from 4.6 percent last year, the Central Bureau of Statistics said Oct. 15.

One-year interest-rate swaps, an indicator of investor expectations for borrowing costs over the period, rose 1 basis point to 1.81 percent. The swaps have fallen 13 basis points this month. Policy makers this week kept the key interest rate at 2 percent after a surprise cut last month.

Israel’s five-year credit default swaps fell one basis point to 144, the lowest since Nov. 8, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to meet its obligations.

The two-year break-even rate, the difference between yields on inflation-linked bonds and fixed-rate government notes of similar maturity, shrank three basis points to 212 basis points, implying an average annual inflation rate of 2.12 percent over the period.

The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, retreated for a second day, falling 0.1 percent to 279.61.

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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