"The fact that Shahar bonds are trading with 10% yields indicates lack of investor confidence in Bank of Israel governor David Klein," according to Gili Cohen, CEO of Solomon Mutual Funds. "The sharp drop in shekel instruments this morning are not directly linked to lending rates, as it is clear to everyone that an interest rate hike is uncalled for during recession, but exactly the opposite is needed. Nonetheless, Klein wanted to use interest rates to show he plans to fight the dropping value of the shekel and rising inflation. The problem is investors don't really believe him."
Shekel instruments on the bond market are continuing to lose ground as the shekel remains weak, trading against the dollar at the level of yesterday's representative rate, NIS 4.978. Shahar bonds, shekel bonds with fixed interest, are falling with the 2680 9-year series losing 2.5% to trade at a 10% yield. Medium-term Shahar bonds are losing an average 1%.
"There is still no mass flight from the shekel, as turnover is still not very high," Cohen notes, but if the trend continues throughout the day, Cohen believes market jitters could hit a new level.
Cohen added that, assuming the worst is behind us, long-term Shahar bonds with 10% yields are an excellent buy opportunity. Assuming 5.5% inflation, this is effective yield of 4.5%. But to those who believe the crisis could get worse, it is clear the Shahar could take more losses and post even higher yields.
Cohen assumes estimates of Klein's impending resignation are purely speculation. "Another rate hike in the current situation is certainly conceivable, especially since Klein wants to show investors he won't leave them high and dry."