The decline of BoI bond purchases may have contributed to higher yields

ISRAEL - In Brief 11 May 2020 by Jonathan Katz

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Highlights of our Weekly Macro Review to be released: Economic indicators point to a sharp contraction of activity, but the gradual opening up of the shutdown which commenced two weeks ago is expected to support a gradual recovery. The CBS Business Tendency Survey reflects sharp contraction in all sectors in April. The Poalim Consumer Confidence Index reflects a sharp decline in the current situation component. future expectations remaining fairly steady. The BoI Composite index declined by 0.1% m/m in April, but much further contraction is expected in coming months. Credit card purchases have rebounded since the opening of up of the economy, down 16% YTD in early May from -42% in mid-April. Unemployment (including non-pay vacation is estimated at 27% in April. The fiscal deficit reached 4.8% GDP LTM (14.9bn ILS in April). Only one quarter of the fiscal stimulus plan has been tapped so far. We expect the deficit to reach 9% GDP this year (BoI sees 11%). The shekel appreciated last week by 0.9% against the EUR but weakened by 0.7% against the USD. In April, the BoI purchased 727ml USD in order to slow shekel appreciation, apparently when the shekel dropped below 3.50/USD. Monetary policy: In April, the Bank of Israel purchased 4.7bn ILS in government bonds, following 8.5bn in March. The BoI has another 36.8bn of purchases at its disposal, within the 50bn purchasing scheme. The Bank of Israel is much less active in bond purchases compared to the Fed or ECB. BoI policy appears to be geared to slowing pressure for higher yields, but not more actively trying to flatten the curve. The bond market: Yesterday, yields moved lower (possible BoI purchases?). Generally, it is like...