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

The post Independence and a Bright Future appeared first on Wise Money Israel.

Current Prices and Yields

Once you’ve decided which government bond type to purchase - Shahar, Gilon, Galil or Makam (read part 2 of the series to learn how), you can view the current price and annual yield percentage using the links in the table below. Assuming you have an Israeli investment account, you can execute your order based on the name of the bond type and series (maturity) or by using the security number (which you can find using the links below). Please remember to consult with your financial advisor before making your personal investment decisions.

Current prices and security numbers can be found on the Tel Aviv Stock Exchange website itself. Unfortunately, that site lacks the crucial Yield To Maturity (YTM) data, which is the preferred way to see the actual annualized yield (interest) percentage over the life of the bond you’d receive and the yields differences between bond series. The Bank Leumi online bond information site has it all. When you click on a bond in the first column of the table below, you will be connected to the Leumi bond site (translated via Google Translate). Once there you can compare the Yield to Maturity (YTM) by looking at the “Yield Gross” column (note that in the case of the Makam bond, this field is called “Yield Effective”) .

To see more details on a specific bond, click on the translated bond name on the right side of Leumi site table. You can then ascertain the securities number (which shows up as "No. paper" in the Bank Leumi site). You will need this number in order to execute your purchase transaction.

Investing in government bonds is a solid investment choice, with guaranteed principle and interest payments for years to come. Because the Israeli bond market is very liquid, you can sell your bonds at any time, keeping your options open. This flexibility together with their stability makes Israeli government bonds an attractive investment option for the bond portion of your diversified portfolio.

This concludes our three-part series on Israel Government Bond investing. If you are interesting in purchasing government bonds, then learn more about opening an Israeli investment account.

The post Why Buying Government Bonds Isn’t Boring: Part 3 appeared first on Wise Money Israel.

What about inflation?

In past decades, Israel experienced hyperinflation, but in recent decades this has not been the case. For quite some time now, Israel has been in line, in this regard, with other Western developed nations. Some government bonds are linked to the government’s cost-of-living index, which attempts to keep bond prices in line with inflation in the country. In this way, the real shekel value of the bond principal and interest is preserved over time, irrespective of inflation. The Bank of Israel is predicting annual inflation of 3.7% through March, 2012.

How do I get paid?

Each bond type pays interest differently: some quarterly, some annually, and some at full maturity. See the table below for more details. Depending on when interest income may be needed, one can factor in the timing of the payments. One very liquid option for steady income is the Makam (Bank of Israel note): a short-term bond purchased for durations of one to twelve months. It is a zero-coupon government bond purchased below par value (full face value) – for example, bought at 98 Agorot – and redeemed at 100 agorot (i.e. 1 shekel). In this way, the “interest” paid is actually price appreciation. One could purchase Makam bonds with different maturities (bond laddering), each expiring in a different month, to create a steady income stream with high liquidity.

What type of returns can I expect?

With global interest rates at a historic low, Yield to Maturity (YTM) for Israel government bonds currently yield up to 5.5% annually (as of June, 2011). The yield depends on the bond duration, variable interest rate or fixed, and whether the bond is inflation-adjusted. Short-term (one year or less) Makam fixed-rate bonds yield up to 3.5% annually, and variable-rate 6-year bonds yield 3.6% (adjusted when the Bank of Israel changes Israel's basic interest rate). Fixed-rate, non-indexed Shahar bonds with a 15-year duration can yield 5.5% per year, for example. In today’s near-zero U.S. government interest rate, a 5.5% return on a government bond with very low risk is quite attractive. Keep in mind that the longer the duration of a fixed-rate bond, the more likelihood there is for downward price movement, if interest rates rise. A lower bond price would affect us only if we were to sell the bond before full maturity. So, in the current low interest rate environment, a shorter-term, variable-rate bond is usually preferable, keeping your bond yield automatically increasing with future interest rate hikes (and allowing you flexibility to move into higher yield bonds in the future).

Because Israel government bonds, as well as corporate bonds, are traded like stocks on a continual basis, there are uneven maturity durations. For example, if you wanted to buy a fixed-rate, non-linked Shahar bond, you may see nine different choices, ranging from 0.9 -15.4 years maturity (not round 5 or 10 years durations). First, you would determine the type of bond you wanted, see its various Yield to Maturity (YTM) interest rates offered for various durations, and then decide which bond is best suited to you. Here is a sampling of different types of bonds and their annual yields:

What do I need to consider when it comes to taxes?

Israel does not tax capital gains, dividends or interest for non-Israelis. For Israeli residents, gains are taxed at 20%, except for non-linked bonds which are taxed at 15%, irrespective of the duration they are held (no high short-term tax rates). Therefore, this is a superb avenue for safely employing your capital, supporting the State of Israel, and receiving a good return on your money safely. A tax accountant can be consulted for more details regarding taxation in your home country. Consultation is not mandatory, though, as there is no end-of-year tax reporting requirement to Israel. When purchasing State of Israel bonds outside of Israel, you can consult your local accountant for tax implications.

What now?

Having understood the various factors that go into bond purchase decisions, you can see the current rates of the bonds you may wish to purchase online. You can then purchase the desired bond, and enjoy the interest payments, as well as the investment stability and peace of mind you’ve gained. A wise investor will continue to watch changes in interest rates, bond prices and yields to determine whether to switch to a potentially better yielding bond in the future, or allocate this capital to another asset class as economic conditions change.

In the final part of this series you will learn how to find out the current exact yield on government bonds and their securities numbers so that you can execute a transaction. Continue to part three.

The post Why Buying Government Bonds Isn’t Boring: Part 2 appeared first on Wise Money Israel.

Our answer is: Israel government bonds. Backed by the full faith of the State of Israel, the risk of default is minimal. The international credit rating agencies rate Israel government bonds as investment grade 'A'.

Because the risk of default is low, so is the annual yield relative to other investment vehicles. However, you are guaranteed to receive interest payments without fail. Keep in mind, that there are other investment avenues, such as corporate bonds, stocks and mutual funds, where the risks are higher, but then so are the rewards. This article is part one of the Solid Government Bond series.

Bonds are a great way to safely earn income, putting your hard-earned capital to work. Israel issues a variety of government bonds. But, which ones should I buy? Let’s look at the available options so that you can make an informed decision based on your personal needs. We will explore some important questions related to Israeli government bonds.

What bond types exist?

Israel Government bonds include short, medium-duration and long-term maturities. They can be fixed-rate or adjustable interest rate, and bonds can be linked to the Israel Consumer Price Index (CPI, cost-of-living) to provide a hedge against inflation.

Why would I buy bonds?

Diversification

It is common investment wisdom that a properly diversified portfolio should have a mix of stocks and bonds, as well as international exposure. They provide a stable income source during turbulent times when stocks may not offer safety or upside potential. During the recent recession, when stocks were losing 40-80% of their value, Israel government bonds provided a safe place to park money, without the risks of volatility or default.

Liquidity

A unique and important characteristic of bond investing in Israel is their liquidity. Bonds are traded on the Tel Aviv Stock Exchange (TASE) just like stocks. So, even if you’re buying a longer-maturity government bond (such as a 15-year note), you can sell that bond online as soon as you please. This can be done with very little commission, small bid-ask spreads and without waiting until full maturity. This liquid market affords us the opportunity to lock in higher yields with an easy liquidation path when necessary in ever-changing economic conditions.

Currency Exposure

Israel government bonds are sold both in Israel and around the world in various currencies. But, when buying bonds on the Tel Aviv Stock Exchange (TASE), you gain direct exposure to the Israeli shekel, one of the stronger currencies since the worldwide recession. Why is gaining direct exposure to the shekel important? The U.S. dollar has eroded 17% against other world currencies in the past year alone, yet the shekel has strengthened 11% against the dollar during that time. Having all your investments in the same currency is financially unwise, and diversification can help neutralize the buying-power erosion of your local currency. Also, bonds are purchased in Israel with low minimums and are quite liquid (vs. high minimums and commissions when purchased abroad). Keep in mind that you can usually get a lower price by using a buy limit order. One can open an Israel investment account to invest in Israel government bonds directly on the TASE and in shekels. You can also buy State of Israel bonds in your home country; in this case they are bought in your own currency but paid and guaranteed by the State of Israel. You won't be gaining real shekel exposure this way, though, and your rates will be considerably lower than those in Israel for the same bond. These bonds mostly have maturities of 2-5 years, and current yields of 0.9% - 2.6% annually.  Similar maturity government bonds purchased from an Israeli investment account yield 4.0% - 4.7% and are shekel-denominated.

Solid Investment

Standard & Poor’s and Fitch international rating agencies have affirmed Israel’s investment grade 'A' rating, with an outlook of stable. Moody’s Investors Service rates Israel’s government bonds as 'A1', also with a stable outlook (comparable to S&P's A+ rating). “Israel has emerged relatively unscathed from the global financial crisis,” says Anthony Thomas, Vice President in Moody’s Sovereign Risk Group... Swift policy responses by the Bank of Israel, combined with economic resiliency, meant that Israel was able to avoid the worst of the global downturn”, he said. Israel has never defaulted or missed a single payment of principal or interest – a significant consideration in today’s tumultuous financial marketplace.

Support Israel

The economic infrastructure of Israel has been built mainly through government bonds. It is a way to support Israel, its economy and prosperity. For the past 60 years, Israel Bonds have provided the funds for modern infrastructure to develop and expand this essential component of economic growth. Today, Israel Bonds are focused on forward-looking infrastructure projects that will secure Israel’s place in the 21st century global economy, which will:

• Connect cities and towns throughout Israel
• Create state-of-the-art communications systems
• Accelerate technological innovation that will attract billions in foreign investment
• Provide new opportunities for Israelis from all walks of life

In the next part of this series you will learn more about government bonds, fixed-rate vs. adjustable, inflation and tax considerations, and how to determine current yields. Continue to Buying Israel government bonds, part 2.

The post Why Buying Government Bonds Isn’t Boring: Part 1 appeared first on Wise Money Israel.

Two financial vehicles that can help us are government and corporate bonds that are linked to the cost-of-living index. This type of bond provide a steady stream of income while interest payments and principal increase lock-step with inflation. The link to the cost-of-living index provides peace of mind, knowing that our buying power isn't being eroded by inflation. Before each interest and principal payment is made to the bondholder, the payment is automatically adjusted to the Israel Consumer Price Index (CPI), the inflation gauge. Specifically, the government of Israel offers such a bond: the Galil Bond. The current yield to maturity on a 4-year Galil bond is 0.3% annually above inflation (effective yield is 0.3% + 3% inflation expectation = 3.3% per year), and on an 11-year Galil Bond is 1.8% above inflation (which translates to a 4.8% effective yield per year).

Another relatively safe inflation-hedge is buying indexed corporate bonds. Solid investment-grade indexed corporate bonds usually provide a better rate of return than indexed government bonds, with some more risk. Their payments are indexed exactly the same way as indexed government bonds. Here are some corporate bonds you can look into:

Ratings

There are two internationally-recognized bond rating agencies that examine Israeli companies' ability to repay their debts: Standard and Poor's and Moody's. Listed below is the meaning of each of their rankings. The S&P's rank can add a fine tuning of + or -; Moody's can add a fine tuning of 1,2 or 3 to better rank a bond within a specific category.

If you would like a portfolio with indexed bonds, please contact us.

The post Avert Future Inflation with Indexed Bonds appeared first on Wise Money Israel.

Investing choices can be boiled down to one axiom: "No Risk, No Gain". All investment options are placed somewhere on the risk-reward spectrum. The more one risks (larger ups and downs on one's invested funds), the more one stands to profit (or lose). Generally, the less one risks (less willing to see ups an downs on the value of one's investments), the less one can profit in the market (but you are mostly protected from potential losses).

Each investor must determine for himself what his comfort zone is for risk and reward before investing in any market, whether it be the stock, bond or the real estate market. Some of us want to have the security that all our money is safe (that its value won't decrease over time), and that we have some upside to make profits. Others want our money to make us a higher profit, and are willing to take more chances to achieve that bigger reward.

Below, you'll find a list that categorizes Israeli investment options based on their risk level. Investors that have many future years to accumulate capital (i.e., younger investors and those still earning income) likely can take more risk with their capital so as to benefit from higher returns. They are willing to invest in stocks, for example, as these usually have a greater potential for high annual returns compared to government bonds. The more speculative investments listed below may be suited to them.

Often, a combination of asset classes will provide proper diversification and the correct balance of risk vs. reward.

Here is a list of financial vehicles offered on the Tel Aviv Stock Exchange, starting with the most solid choices (least volatility, least risk), to the more risky vehicles that present the greatest chance of growth and profit.  The less risky investments ("solid") will more likely preserve your capital with some profit potential. All of these investment instruments can be purchased online from an Israeli investment account.

Solid: low risk

Government bonds

• Fixed interest rate
• Adjustable interest rate
• Inflation-indexed
• Short-term Treasury bills

Highly-rated corporate bonds (AAA, AA, A)
Bond mutual funds

• Government
• Corporate
• Mixed

Bond Exchange Traded Funds (ETF)

Solid: moderate risk

Lower-rated investment-grade (BBB) bonds and not-rated corporate bonds
Convertible Bonds
Structures

Somewhat Speculative

Stock Exchange Traded Funds (ETF)

• Market index-tracking funds
• Sector funds

Stock Mutual funds

Speculative

Individual stocks
High-Yield Bonds
Tel Aviv Index Options

Highly Speculative

Warrants
Futures/forwards
Currency and commodity ETFs
Currency trading

Contact us for assistance or direction in investing in any of these investment types in Israel.

The post What Are My Investment Choices? appeared first on Wise Money Israel.