Israel’s 10-year bond yield drops on bets that rates rise

Central bank seeks to return inflation to the government’s target range.

By SHARON WROBEL
April 3, 2011 23:20
1 minute read.
The Jerusalem Post

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The yield on Israel’s 10-year government bond declined for a fourth day on Sunday, amid expectations for higher interest rates over the next year as the central bank seeks to return inflation to the government’s target range.

The yield has dropped 10 basis points since the Bank of Israel unexpectedly raised the base lending rate by a half-percentage point to 3 percent on March 28 as inflation accelerated and growth surged. It was the first increase of its size since 2005 and put the rate at the highest level since November 2008. February prices jumped an annual 4.2%, the most in more than two years, and above the 1% to 3% target for the second month.

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“The market is still recovering from the big rate increase and is pricing in inflation expectations,” Assaf Rosenberg, a trader at Excellence Nessuah Investment House Ltd., said by telephone. “Consumer prices are expected to rise over the next three or four months, but there is uncertainty about how much the central bank will lift borrowing costs.” The benchmark Mimshal Shiklit bond due January 2020 gained, pushing the yield down 1 basis point to 5.25 percent at the 4:30 p.m. close in Tel Aviv.

Governor Stanley Fischer will likely raise the rate another two times by 25 basis points each, bringing the benchmark rate to 4% by year end, Rosenberg said.

The economy will grow at a faster pace this year than previously estimated, the central bank said March 30, revising its growth forecast to 4.5% from 3.8%.

Growth accelerated to an annualized 7.7% in the fourth quarter as exports, fixed investment and consumer spending climbed, the Central Bureau of Statistics said on March 10.

The shekel strengthened 0.4% to 3.4646 per dollar on April 1, the highest level since October 2008. (Bloomberg)

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