Israeli Government Raises $2 Billion in Bonds

The high demand for Israeli government bonds is a vote of confidence in the economy, said the Finance Minister.

Israel raised $2 billion in the latest round of U.S. dollar-denominated government bond issues that ended Monday, with investor demand greatly outstripping supply.

The 10.5-year and 30-year bonds will help the treasury close the projected giant hole in the government's 2013 and 2014 budgets.

Some $1 billion worth of 10.5 year bonds were issued, with a yield of 3.213 percent, 125 basis points above the United States's Federal Reserve rate for 10-year treasury bonds.

Another $1 billion worth of 30-year bonds were issued with a yield of 4.588 percent, some 145 basis points above the Fed rate for 30-year treasury bonds.

Investor demand for the bond issues exceeded $9 billion, some 4.5 times the actual amount issued. In response to the high demand from large strategic investors, Israel's treasury decided to issue more 30-year bonds than originally planned, reaching a total of $1 billion. The issuing of such a large number of 30-year bonds is reflection of the treasury's policy of increasing the average duration of Israeli government debt and significantly reducing the risk of rolling over government debt.

"This is a vote of confidence in the Israeli economy," said Finance Minister Yuval Steinitz, following the successful bond issue. "The fact that we continued to reduce debt relative to GDP in all recent yearshas generated confidence among investors in the strength of the Israeli economy. This achievement is particularly remarkable given the ongoing debt crisis in Europe."   

The latest bond issue was the Israeli government's 10th dollar-denominated bond issue. The previous foreign currency-denominated bond issue was in January 2012. Israeli government dollar-denominated bonds are used by investors as a reference point for pricing the systemic risk in the Israeli economy. The latest bond issue represents the lowest cost for a dollar-denominated bond issue paid by the Israeli government and historically narrow interest rate spreads.

By the end of the bond offering, 95 percent of the bonds were acquired by non-Israeli investors hailing from 34 different countries.

Barclays, Goldman Sachs Group and Citigroup were the underwriters of the issue.

Alex Kolomoisky