Market Report / Fear of Inflation? Unlinked Shahar Bonds Tumble

Tel Aviv stocks closed mixed with a positive bias yesterday after a turbulent session marked by a steep drop in fixed-income Shahar bonds, indicating an upsurge of inflation concerns.

The night before, Wall Street had staged a rally and oil crossed the $100 per barrel mark on the upside. European markets gained ground across the board. Stock exchanges in Asia were mixed, and over in Tel Aviv, the benchmark indexes zigzagged without clear direction, on thin trading. The benchmark TA-25 index closed 0.2% higher at 1,293 points and the broader TA-100 index gained the same, ending at 1,173 points.

In Europe the gains were muted. Some strategists said equities might be stuck in a range until the macro picture improves, Reuters reported. "Some of that macro uncertainty needs to be less visible, if we're going to break out on the upside," Bill Dinning, head of investment strategy at Aegon Asset Management in Edinburgh told the news agency.

Corporate bonds eased down - but government bonds dived hard, losing as much as 0.7%. The longer the duration, the harder the fall. Shahars, unlinked government bonds bearing fixed interest, maturing in January 2015 lost 0.13%. Shahars maturing in 2026 lost 0.73%. Traders surmise the problem is swelling concern about inflation due to the increase in commodity prices. Investors don't want bonds that lack linkage to consumer prices, he explained.

The foreign-currency market brought even more drama. As speculation mounts among economists that the Bank of Israel will be raising its interest rates for June (to be announced Monday evening ), the dollar has been weakening. Yesterday it depreciated by 1.1% to NIS 3.49. The euro weakened by 0.8% against the shekel to NIS 4.98. True, not long ago the dollar had been down to NIS 3.37.

Shares of Strauss Group gained 2.6% following a weak report earlier in the week for the first quarter of 2011, but also following the company's launch of its water-technology business in China.

The Leviathan gas field pack gained ground, from 1.3% to 2.8%.

Shopping centers builder BIG announced closing a deal to buy 50% of a shopping center in Long Island for $43.5 million. Its stock gained 1.6%.

Ahead of Oil Refineries filing its first-quarter financials, analyst Natalie Gotlieb of IBI issued a Buy rating for the company, projecting that it will do well by the rising petrochemicals margins. Oil Refineries stock gained 0.9%.