### Israeli Assets Decline Following the Assassination of Ismail Haniyeh; Shekel Among Worst-Performing Currencies
**Traders’ Optimism Erodes Amid Rising Risk of Wider Conflict**
The Israeli shekel faced its largest three-day selloff in two years, and government bonds fell as traders grew concerned that the assassination of Hamas political leader Ismail Haniyeh on Iranian soil could escalate the risk of a broader war in the Middle East.
The currency dropped by about 1.2% to 3.7886 per US dollar after Hamas blamed Israel for the airstrike in Tehran. This brought its three-day decline to 3.3%, making it the worst-performing currency globally, trailing only Ethiopia’s recent devaluation. The yield on 10-year Israeli sovereign bonds rose by 6 basis points to 4.99%, while dollar-denominated bonds posted the largest losses among emerging markets.
During nearly 10 months of conflict between Israel and Hamas, investors had repeatedly hoped for a return to peace, leading to intermittent resilience in the shekel as well as in the country’s stock and bond markets. However, with ceasefire talks ongoing in Gaza, recent events have eroded traders’ optimism for a swift resolution and heightened fears of Iran and its allies being drawn into direct conflict with Israel, according to Bloomberg.
Nick Rees, a foreign exchange strategist at Monex Europe Ltd. in London, commented, “It’s hard to envision a scenario where Iran doesn’t respond, given that this attack wasn’t just on Iranian soil but targeted a guest of the new president in Tehran itself. It’s also difficult to see the shekel not continuing to trade under pressure unless both sides pull back from the brink.”
This week’s selloff pushed the shekel to trade near its weakest level since April after breaking through multiple support levels at the 50-day, 100-day, and 200-day moving averages. Its volatility is also increasing: one-month implied volatility, based on options prices, has risen for five consecutive days, the longest streak since November.
On Wednesday, the worst-performing sovereign dollar bonds in the Bloomberg index all belonged to Israel. The 2043 bonds fell as much as 1.1 cents on the dollar, halting a four-day rally.
Iranian Foreign Ministry spokesperson Nasser Kanaani stated that Haniyeh’s killing “will strengthen the deep and unbreakable bond between the Islamic Republic of Iran and dear Palestine and the resistance.”
Meanwhile, Lebanese Prime Minister Najib Mikati warned that the situation “is worsening,” and the Houthis condemned what they called an “Israeli assassination” and a “major escalation.”
By/radwa sherif