Government Security That Brings Peace of Mind

There’s something comforting about knowing your investment is backed by the full faith and credit of the government of Israel. It’s not just about patriotism or Zionism; it’s about real financial security. Unlike stocks that can plunge on a bad day in the market, government bonds offer a sense of stability. At the end of the day, I know that the State of Israel does everything to meet its commitments and has never missed a payment in the history of issuing bonds over 70 years ago.

I remember a particular moment – during a global economic crisis a few years ago, that our portfolio was fluctuating wildly. But one part of it remained steady – the government bonds. That feeling of having a financial anchor was worth everything.

Inflation Protection

Many of Israel’s government and corporate bonds are linked to the inflation index, meaning you’re covered even if inflation gets out of control. Your buying power stays intact, as your interest and principal payments are linked to the Israeli CPI (inflation) index. That means if inflation is 3% this year, and your interest payments are 4%/year, you will receive 7 NIS for your 100 NIS invested this year. If next year inflation is 6%, you will receive 10 NIS for your 100 NIS invested. Also, the principal will be indexed as well. That means if there is inflation during the years you invested, not only are your interest payments higher, but when the bond matures, the government will pay you back the bond’s principal amount indexed to inflation over all those years!

Predictable Returns Without Unwanted Surprises

I love surprises – just not when it comes to my money. One of the things I found most appealing about bonds is the steady interest flow. It’s like receiving a small, predictable “salary” that keeps trickling into your account. And when the whole market is in turmoil, knowing you have a stable income is no small thing.

And honestly? It’s comforting to know that if inflation starts to rise, you’ve got inflation-linked bonds protecting you. This way, even if prices go up, you’re not left behind.

Diversity and Liquidity – So You Can Stay Flexible

One of the most important lessons I’ve learned is to always stay flexible. Life is unpredictable, so investing in a liquid asset is critical. I found the perfect balance with Israeli bonds – on one hand, they provide stability, and on the other hand, they offer high liquidity. You can always sell the bonds immediately if you need cash. And since bonds are traded in Israel like stocks, you can get in and out of State of Israel bonds quickly, with low spreads, online and with very minor transaction fees.

For me, that made all the difference. When I needed liquid funds for an investment opportunity I couldn’t pass up, selling bonds was the perfect solution. I didn’t have to compromise on price or stress about market fluctuations.

Current Yields

With the interest rates in Israel currently high, State of Israel Treasury bills (1-12 month maturities) are yielding annually about 4.3%, State of Israel bonds (1-27 years) yield up to 4.9%, and A- and above rated Israel corporate bonds are currently yielding up to 6.3% annually.

So, Who Is This Suitable For?

If you’re also looking for a stable anchor in the stormy economic sea, Israeli government or corporate bonds could be the perfect solution. It’s not about getting rich overnight, but it’s a smart way to sleep well at night.

They’re especially suitable for individuals seeking to preserve the value of their money, receive predictable returns, and enjoy relative security even during uncertain times. As an added benefit, investing also supports Israel, its economy, and its people, while offering diversification through exposure to the strong Israeli shekel.

If you want to hear more about my journey in the investment world and get tips from my personal experience, keep following the blog. In the end, it all starts with one small decision – to keep your money stable and secure by investing in Israeli bonds.

The post How Israeli Bonds Provide Stability for Investors appeared first on Wise Money Israel.

The offering has attracted over 400 different investors from 40 different countries, with strong demand from Asian institutional investors. The Ministry of Finance says Bank of America, Barclay’s Bank, Goldman Sachs and Citibank are underwriting the initiative. With $25 billion in demand, Israel decided to raise $5B at favorable rates. This isn’t surprising given that Israel has an AA- Stable credit rating from S&P, A1 Stable rating from Moody’s, an A+ rating from Fitch.

Israel’s Accountant General Roni Hezekiah said the oversubscription “indicates the confidence of the world’s largest investors in the Israeli economy, especially in view of the way the State is coping with the corona crisis. The 100-year IPO is a testament to the country’s financial strength and its establishment in international markets.”

Senior Deputy Accountant General Gil Cohen said: "The ability of the State of Israel to make the successful IPO at record speed and with the high volatility in financial markets is a direct result of [Israel’s] economic strength and the ongoing relationship with investors around the world in recent years.

In other COVID-19 Israel news, Israel was ranked the safest country during the coronavirus outbreak according to the Deep Knowledge Group website as highlighted by the Prime Minister’s Office. The country is currently coming out of a lockdown for all citizens, as already on April 2, 2020 new cases peaked and we’re seeing much fewer new cases in the past four weeks. Among the essential sectors that continued to function during the crisis is the capital market. We are already seeing a significant market recovery and have made appropriate moves to protect and grow our client’s investments.

If you'd like to learn more about investing in Israeli bonds, please go to our contact page and write us.

To invite a speaker click here.

Sources: Israel Ministry of Finance, Calcalist, News1

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Wall Street Stocks

After six years of stock market growth on Wall Street (since 2009), we began to witness a dramatic slowdown of stock appreciation this year. Having gained a meager 3.5% January to July (S&P 500), stock markets around the world took a dramatic downturn in August, 2015. Toward the end of the last month, the American S&P 500 large-cap stock index had lost over 11% for the month. Since then, Wall Street has regained half of the losses, but still left investors with a 3%+ loss for the year.

Tel Aviv Stocks

In contrast to the American stock market, Tel Aviv stocks had risen by over 17% from January to July. During the late August Flash Crash, the Israel stock market declined in sympathy with other stock markets around the world, but less (-8.8%). But the good news is that the Israeli stock market is still up 8.9% for 2015.

Tel Aviv Corporate Bonds: Safe Harbor

During this recent mini-crisis in capital markets around the world, Israeli corporate bonds reacted with much less volatility. The large-cap Israeli corporate bond index (Tel-Bond 20) declined only 1.7% (one-fifth of the volatility of stocks). In fact, for the entire history of the Tel-Bond 20 index (since 2007), Israeli corporate bonds presented a similar overall yield as stocks, but with much less volatility. This presented an opportunity for steady, solid growth vs. the often rollercoaster experience stocks presented.

Conclusion

Was the August Flash Crash just the beginning of a larger trend reversal, preceding the end of the 7-year bull market? Will the Fall of 2015 be remembered as the beginning of a major stock market correction? Time will tell. But many economists believe this Fall will be very volatile, irrespective of the eventual outcome. As the charts show us, Israeli corporate bonds provide a good place to invest funds, providing reasonable yields and much less volatility. We can sleep easier knowing our capital is being preserved while helping to build up the Jewish State. Also, 70% of these bonds’ interest payments are fully indexed to inflation, affording investors full protection against possible future inflationary pressures.

The post Prudent Investing Weathers the Storm appeared first on Wise Money Israel.

The following bonds are all rated A- or above by the international rating agencies, and like all bonds, guaranteed principal and interest payments per its payment schedule. Bonds on the Tel Aviv Stock Exchange, using an Israeli brokerage account, can be purchased and sold online, with very low commissions, just as stocks are purchased.

There are three types of interest-rate payments for Israeli bonds: fixed-rate, adjustable-rate, and inflation. Learn more about the differences in our article Solid Bonds - Higher Yields. The Duration of the bonds below is relatively short, so you're less exposed to bond price fluctuation due to interest rate changes.

When purchased during U.S. business hours, there are no bond minimums (you can buy a single bond for $1), and it can be sold before maturity during any trading day (need not hold until term). Contact Wise Money Israel for more information on how to invest in these Israeli bonds.

We think the opportunity to invest in Israel, gain exposure to the shekel and economy here, and make 8% annual return on your money from solid bonds is an opportunity not to be missed.

Learn more about opening an Israeli brokerage account remotely here.

Update [Oct. 3, 2014]: Please note the table below, especially yields, were listed as of the writing of the article in February, 2012. Obviously prices and yields change over time, so the yields are not correct anymore. Please check with the Tel Aviv Stock Exchange website or Wise Money Israel to obtain current yields.

Many of the bonds yielded above 8%/year during this period. Therefore current yields are lower. Please see this Hebrew-translated chart to see what the bonds below yielded between Feb. 24 2012 and Oct. 3, 2014

Click to Enlarge: Historical yield of selected bonds

The post Earn 8%+ with Israeli Bonds appeared first on Wise Money Israel.

Recently, the leading international rating agency Standard & Poor's upgraded Israel's credit rating by one notch, to A+. According government sources, the rating action reflects S&P view of Israel's improved economic policy flexibility as a result of strong growth and careful macroeconomic management. The rating service raised its long-term foreign currency sovereign credit ratings on the State of Israel to A+ from A, affirmed the local currency ratings at AA-, and the transfer and convertibility (T&C) assessment remains at AA. Also, S&P's outlook for Israel is stable.

This confirms Israel again as a preferred investment destination, and shows the confidence of the international financial rating services in the stability of the Israeli bond market.

This is in sharp contrast to recent downgrades of the United States and various European countries due to their fiscal policies and rampant government deficit spending.

S&P mentioned that their ratings on Israel are supported by their view of its "prosperous and resilient economy, strong institutions, ongoing fiscal consolidation, and robust external performance."

Israel Weathered the Global Financial Crisis Well

According to S&P, Israel is on a credible path toward continued government debt burden reduction and stronger external indicators, having weathered the global financial crisis well. S&P also noted that Israel's external position is sound, as a result of consistent current account surpluses since 2003, and that that the production of natural gas by the middle of the decade is likely to further increase the economy's efficiency as well as strengthen its fiscal and external positions.

The stable outlook reflects S&P's opinion that Israel's popular consensus about containing public debt will remain intact despite social protests. S&P noted that "despite rapid appreciation in housing prices, we do not consider the sovereign to be exposed to significant contingent liabilities from the financial system."

Israel Banks Run Tight Ship

Also, according to S&P, the banking sector appears to be tightly regulated, resident banks seem to pursue relatively conservative business models, and Israeli banks and households are also fairly well capitalized by international standards.

Rating Agencies Continue to Upgrade Israel

S&P first upgraded Israel's credit rating to 'A' in 2007. In January 2009, it reaffirmed its decision, further giving Israel's market a "solid" forecast. Alongside the decision by S&P to upgrade Israel's credit rating to A+ this September, the two other major credit rating firms, Moody's and Fitch, also reaffirmed their rating towards Israel, as Moody's left Israel's A1-Stable rating unchanged, and Fitch ratings left Israel's A Stable rating unchanged.

Rating agencies continue to upgrade Israel's credit rating

Government Officials Response

Israel's Minister of Finance, Dr. Steinitz

Minister of Finance, Dr. Yuval Steinitz, noted that "this is an impressive credit given to the Israeli economy and its successful coping with the global economic crisis. This achievement of credit upgrade is especially unique given the debt and massive unemployment crisis, which hurt many economies' credit rating." Minister Steinitz also noted that "the fact that S&P mentioned the latest natural gas findings as a point of strength for the Israeli economy indicated the importance of the work done by the Committee to Examine the Fiscal Policy on Oil and Gas Resources in Israel, Headed by Prof. Eytan Sheshinski." The minister added that "Israel cannot rest on its laurels, as the on-going global crisis demands us to keep our budget frameworks and economic policies.

The Accountant General in the Ministry of Finance, Ms. Michal Abadi-Boiangiu, noted that "the announcement by S&P in such times, when the world is confronting a deep global economic crisis, testifies on the strength of the Israeli economy."

Source: Israel Ministry of Finance

The post S&P Believes in Israel: Upgrades to A+ appeared first on Wise Money Israel.

Stocks

There are 736 public companies listing securities on this single, national exchange. Some of these companies are local corporations with less than 10 million NIS ($2.5M) capitalization, while some are international powerhouses with over $50 billion in market cap, such as Teva Pharmaceutical Industries. Including convertible bonds, there are over 1,000 stocks trading in the Israeli stock market, totaling $800 million in volume. There are also over 130 Israeli companies traded on other exchanges, including the NYSE, NASDAQ, and AMEX U.S. exchanges, meaning investors may purchase Israeli company stocks in their own currency through their own broker or online account. Individual investors can also easily participate in corporate IPOs, which include some of Israel's leading-edge technology firms.

Bonds

In addition to a vibrant stock market, the Tel Aviv Stock exchange has a highly liquid government and corporate bond market. Here, one can buy and sell bonds online immediately like stocks, with very small bid-ask spreads. Israel Government Bonds and corporate debentures include short, mid and long-term fix-rate, variable-rate, and cost-of-living indexed bonds. Daily bond trading volume is $760 million.

Exposure to Israeli currency

When you buy securities (stocks and bonds) on the TASE, you buy them in Israeli Shekels (NIS). This provides the foreign investor currency diversification. There are other investment vehicles to hedge against foreign currency fluctuations and investment mechanisms to index to a particular currency, such as foreign currency options, futures and forwards.

Other financial vehicles

The Israeli capital market has a multitude of ETFs (Exchange Traded Funds) for both stocks, bonds and stock/bond indexes. You can invest in convertible bonds, Treasury bills, index mutual funds, and stock/bond mutual funds. There are other investment opportunities for the sophisticated investor including derivatives (options, etc.), warrants, futures, forwards, currency ETFs and hedging, structures and commodity ETFs. See our article for a full list of investment choices in Israel.

The Exchange

The TASE's automated exchange system allows for continuous, simultaneous and instant electronic trading by retail (individual) and institutional investors alike. This system ranks with the most advanced trading systems used by the world's leading stock exchanges. Companies listed on the TASE publish their financial reports quarterly online, just like Wall Street. Israeli companies use the International Financial Reporting Standards (IFRS), which is taking over for the GAAP reporting method as the international standard. The individual investor transacts through one of the 28 Israeli financial firms TASE members, which include banks, insurance companies, and investment brokerages. A few of the members are Citibank, Merrill Lynch (Bank of America), UBS Securities Israel, Bank Hapoalim, and Bank Leumi. Both an Israeli and a non-Israeli investor can manage their portfolio independently. You can also opt to have it managed by professional portfolio managers.

Suitability to different types of investors

The TASE has several partners that help to provide liquidity for traded securities. Like Wall Street, the TASE provides investment mechanisms for both long and short sellers, margin account, and leveraged investments. As a result, this market is suitable for the long-term investor, the mid-term investor, swing trader and even day-trader.  Since the market is open on Sundays, you get bonus trading hours not offered in most countries.

Tax considerations

If you reside outside of Israel for 183 days per year or more, you are exempt from paying Israeli tax on your capital gains, dividends and interest paid. The country of residency of the investor is where the tax would be due. For Israeli residents, there is a relatively low tax rate on capital gains. Current capital gains rates are 15% for adjustable- and fixed-rate bonds and non-inflation-indexed interest. 20% on all other gains (in real-terms, beyond inflation) including stock capital gains, indexed bonds, dividends and inflation-indexed interest income. The rate applies to all holding durations and there is no higher rate for short-term capital gains.

Wall Street investor?

If you are already familiar with Wall Street, you might like to read about some interesting similarities and differences between the Israeli market and the U.S. capital market. Of course, the Israeli capital market is affected by news events, so keep reading Wise Money Israel's news section to understand how these events affect investment in Israel.

To find out why you should invest in Israel, click here.

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