Bethel Finance: Israel Two-Year Swaps Rise to 1-Month High on Bets Rates to Hold

Bethel Finance news:
Israel’s two-year interest-rate swaps climbed to the highest level in more than a month on bets the Bank of Israel will hold borrowing costs next week amid signs Europe’s debt crisis is stabilizing.

The swap rate, an indicator of investor expectations for rates over the period, increased one basis point, or 0.01 percentage point to 2.55 percent, the highest since Dec. 14 at the 4:30 p.m. close in Tel Aviv. Policy makers will review borrowing costs Jan. 23, with 11 of 19 economists surveyed by Bloomberg forecasting interest rates will remain at 2.75 percent.

The Bank of Israel left its benchmark lending rate unchanged in December, after two cuts in three months, calling the current level “comfortable” because it “allows room to maneuver in the event of a further deterioration in the economic situation.” Eight economists in the Bloomberg poll predict the bank will lower the rate to 2.5 percent next week. Israel’s economy grew 3.6 percent in the third quarter, more than previously estimated, the Central Bureau of Statistics said Jan. 16.

“The central bank may wait to cut rates on increased signs the crisis in Europe is calming down and local demand in the economy will continue to expand albeit at a slower pace,” said Alex Zabezhinsky, chief economist at DS Securities & Investments Ltd. in Tel Aviv.

The European Central Bank said today there are signs the economy is stabilizing and that the ECB’s record loans to financial institutions will help support growth. Greece’s government heads into a second day of talks with private creditors in a push to reach an accord that would slash the nation’s debt and avert a collapse of the economy.

The yield on the 5.5 percent benchmark bonds due in January 2022 was unchanged at 4.47 percent.

Bank Leumi Offering

The shekel climbed to as much as 3.7773 a dollar, the highest this year, before trading at 3.7862 at 6:01 p.m. in Tel Aviv.

The yield on inflation-linked bonds due June 2013 gained less than one basis point to 0.49 percent. The two-year break- even rate, the yield difference between the inflation-linked bond and fixed-rate government bonds of similar maturity, increased for a third day, advancing one basis point to 203, implying an average annual inflation rate of 2.03 percent.

Bank Leumi Le-Israel Ltd., the country’s largest lender by assets, plans to raise “hundreds of millions” of shekels of tier 2 capital next week in its first debt offering this year. Cellcom Israel Ltd., the nation’s biggest mobile-phone company, said its board authorized to begin preparations for an auction of as much as 300 million shekels ($79 million) of debt.