Israel's risk premium declines on ceasefire expectations

ISRAEL - In Brief 24 Nov 2024 by Jonathan Katz

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Geopolitics: A ceasefire in North still appears likely in the coming week, according to both Lebanese and Israel sources. The ground operation on both fronts is winding down, although missiles and drones continue to land in the extended North of Israel resulting in some damage and casualties, as yesterday witnessed an escalation in incoming missiles. The imminent threat from a ballistic missile attack by Iran appears to have declined. A close look at labor data points to some weakness October is a problematic month for seasonal adjustment due to the concentration of Jewish holidays and last year’s outbreak of the war. Looking at the original data, points to a sharp decline in the number of employed and a decline in job vacancies. Our “labor tightness ratio” appears soft, if we include the decline in job seekers since the war to the number of official unemployed. A softer labor market supports less wage/inflationary pressure. Israeli institutions purchase FX, foreigners buy government bonds In September, institutions increased their FX exposure purchasing net 2.4bn USD following 6.3bn in August. Foreigners increased their share of government holdings to 9.7% in September from 8.4% in July. A likely scenario of a ceasefire and approval of the 2025 budget will support further purchases of bonds by foreigners while locals could reduce their FX exposure. The shekel appreciates as the risk premium declines The shekel appreciated by 1.2% last week, against the basket and by 1.9% since the beginning of the month. The yield differential of the 10-year bond vis-a-vis US bonds has declined to less than 20 basis points from over 1% in September. Rate hold decision today. We do not...