Israel's Yield Curve Remains Stable Amid Hawkish Bank of Israel Stance

The local yield curve remains notably stable despite a hawkish rate decision by the Bank of Israel and prior market pricing reflecting a roughly 20% probability of an immediate rate cut, according to a weekly review published by Yoni Fanning, chief strategist at Mizrahi-Tefahot Bank. Fanning noted that domestic activity levels continue to signal a growth pace slightly above long-term trends, supported by Bank of Israel composite activity indices and robust credit card usage throughout the third quarter, ahead of the upcoming official GDP release in approximately three weeks.

In the United States, early signs of exhaustion are emerging in the cross-sector momentum driven by artificial intelligence capital expenditures, pre-midterm demand boosts, and rising energy prices. Preliminary October Purchasing Managers' Index figures and consumer sentiment surveys from the University of Michigan point to a cooling on both supply and demand sides. Meanwhile, American consumers continue to face headwinds from elevated energy expenses and high borrowing costs impacting durable goods purchases, while housing market indicators show a slowdown in both housing starts and home sales.

Across the Atlantic, rising U.S. yields are translating into heightened financial risk levels globally. In France and Italy, these dynamics are approaching thresholds that will likely necessitate fiscal adjustments in the near future, while prolonged stress in the U.S. high-yield credit market threatens broader financial instability. In the United Kingdom, energy price pressures are contributing about one percentage point to headline inflation on an annual basis—representing roughly two-thirds of the peak impact seen during the 2022 energy crisis—with the remainder driven largely by persistent service sector inflation.