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The Bank of Israel's intervention in the bond market seems to have paid off: The bank made a NIS 850 million profit on paper - equal to annual returns of 5% - on government bonds it purchased during the economic crisis in 2009, TheMarker calculated.

The bank surprised the Israeli financial markets in February 2009 when it announced that it would be buying up government bonds on the stock exchange, in an attempt to slow or halt the rise of long-term interest rates.

By buying bonds, the country's central bank increased demand, and thus raised the price of the bonds, which in turn pushes down their returns - meaning, the interest rates they offer investors.

Thus, the bank hoped to help the economy recover, in part by making it easier for companies to recycle debt. When companies issue bonds, the interest rate is set based on the going rate on government bonds. The higher that interest rate, the more expensive it is for companies to raise money.

In March, a month after that initial announcement, the bank announced it would be picking up the pace of its acquisitions. Every day, it regularly bought hundreds of millions of shekels in government bonds on the open market.

By the end of August, the economy had begun to recover and the bonds market had stabilized. The bank then announced it would be ending its bond purchases. By that time, the bank had purchased a total of NIS 18 billion in bonds, which it still holds.

Now, a little more than a year later, the Bank of Israel's monthly financial reports show that beyond helping the economy, the purchases happened to be a decent investment. To date, the bonds' value has increased by a little more than NIS 1 billion, for annualized returns of about 5% on the investment.

Since the bank hasn't cashed in on its holding yet, those profits are currently only on paper. However, the bank already entered the profits in its books, in keeping with accounting practices.

Israel's bank wasn't the only public body to turn profits from the downturn - the American government made money from the investments in banks it made during the peak of the crisis in an attempt to increase liquidity and encourage the banks to start lending again. It has already cashed in on some of its holdings, as banks repaid loans and bought back options, and to date has made a total of $10 billion, for returns of 9%.

Mind you, the Bank of Israel's returns on government bonds aren't as high as they could be - mutual funds that specialize in government bonds did better in 2009. The Psagot bond fund, the largest of its kind, with more than NIS 1 billion under management, saw returns of 10% in 2009.

Of course, that's not a fair comparison - the mutual funds' mandate is to make profits, while the bank's goal is to stabilize the economy.

So if the bank profited, who lost? All the investors who got scared as the market fell during the first half of 2009 and liquidated their mutual funds and pension funds.