The bond market climbed steeply on Sunday after the May consumer price index came in under forecast and the dollar sunk, settling to just above NIS 3.60. Shares, meanwhile, rose but in very thin trading as the action moved over to the debt market.
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The rise in bond prices was led by government bonds due in 2042, which soared 1.52%, slashing their yields to 4.98%. Ten-year, unlinked Shahar shekel bonds climbed 1.15%, leaving them at yields of 3.7%. Five-year Shahars rose 0.68% to cut their yield to 1.88%. Inflation-linked government bonds for 19 years registered rises of 0.78% as yields fell to 1.51%. Unlinked government bonds due in 2041 jumped 0.83% with their yield falling to 2.55%.
"I don't recall such aggressive rises in a single day in many years," said Dan Yardeni, deputy CEO for investments Altshuler-Shaham. "While we saw nice rises in the April market, they occurred over the course of a month, not in one day."
He and other traders attributed the rally to a tiny 0.1% increase in the May consumer price index, published on Friday. In addition, the dollar lost significant ground against the shekel on Friday, weakening close to 0.4% to a Bank of Israel rate of NIS 3.601. The euro lost 0.3% to NIS 4.8009.
Both developments point to lower interest rates ahead as the central bank is determined to weaken the shekel. Low inflation will give it more flexibility to cut interest rates in order to accomplish that. Analysts attributed the increase in bond prices to the Iranian election over the weekend, which yielded a decisive victory for moderate Hassan Rowhani and could ease tensions in the region.
As a result, said Yardeni, the trend in the bond market should continue. "There's no bubble or selling opportunity here," he said. "It's not too late to get on the train and buy long-term government bonds."
In stock market trading, shares ended higher, with the benchmark TA-25 index ahead 0.24% at 1,225.11 points by the close. The broader TA-100 advanced 0.4% to 1,097.38. But trading was unusually thin even by the standards of a Sunday, when foreign investors are mostly absent, with just NIS 496.7 million shares changing hands.
Delek Group, Yitzhak Tshuva's holding company, dropped 1.9% and led the most actives on turnover of NIS 28.2 million. The company's Delek USA unit sold some NIS 233 million in shares in New York in an off-the-floor transaction at a price of $32.18 each.
Insurance shares were the day's standout, with the TA-Insurance index jumping 2.4% to 1,390.96. Harel Investments led the insurers on a rise of 3.6%, with Clal Insurance and Menorah both trailing on 2.6% gains.
U.S. stocks fell on Friday as investors worried that major central banks may soon start withdrawing stimulus and after data showed a decline in U.S. consumer sentiment. But European shares ended higher, supported by signs of merger and acquisition activity in the region. That helped boost the MSCI world index 0.1% for the day. The index, however, fell for a fourth straight week.
On Wall Street, the Standard & Poor's 500 Index and the Nasdaq Composite Index both closed down 0.6% at 1,626.73 and 3,423.56, respectively. The FTSE EuroFirst 300 edged up 0.2% to 1,175.92.
On the TASE, Housing & Development Ltd. rose 2.9% after a wholly owned subsidiary won a $580 million tender to upgrade a highway between Shagamu and Ibadan in Nigeria. Electra, the maker of electro-mechanical systems, ended 0.5% higher after it reported on Sunday that it sold its Belgian operations for NIS 154 million. The company will report a gain of NIS 63 million in the sale after it is completed, probably in October, it said.
Other gainers included the biotechnology firm Kamada, which gained 3.8% by close, and apparel maker Delta Galil, which rose 2.6%.
Teva Pharmaceuticals continued to slide, edging down 0.4% on turnover of NIS 26.1 million on Sunday. The latest bit of bad news for the world's biggest maker of generic drugs was a downgrade of its debt outlook by the Moody's credit rating agency to Negative from Stable.
Reuters contributed to this report.