Israel Sells 2.25 Billion Euros in Bonds

Big issue marks first time Israel taps European market in three years.

A picture illustration of Euro banknotes.
Dado Ruvic/REUTERS

Encountering unexpectedly strong demand from investors, Israel on Wednesday moved forward with the sale of 2.25 billion euros ($2.38 billion) in bonds, including its first-ever 20-year bonds, treasury officials and market sources said.

Israel has launched a dual-tranche offering of 10- and 20-year euro bonds, with 1.5 billion euros of 10-year bonds and the rest in 20-year bonds, making it the biggest euro offering ever by Israel and the first one since 2014.

Bids from buyers submitted were around 87 base points above the euro swap rate for the 10-year bonds, with interest set at 1.5%. For the 20-year bonds, bids were at 125 base points above the euro swap rate and interest was set at 2.375%. Combined order books were in excess of 9.5 billion euros.

The Finance Ministry had expected to raise between 1 billion and 2 billion euros, but market conditions are very favorable right now for Israel and treasury officials, led by accountant general Michal Abadi-Boiangiu, encountered unexpectedly strong demand from institutional investors when they embarked on a road show this week in London, Munich, Frankfurt and Paris to meet with investors.

Abadi-Boiangiu, who will be stepping down from her treasury post later this month, decided to move ahead with the issue on Wednesday and boost its size beyond the range officials earlier said off the record that they were seeking.

Israel’s sovereign credit rating has improved as the economy shows sustained growth, its current account has been on surplus for a long time and its ratio of debt to gross domestic product has been falling.

In November, Fitch Ratings raised Israel’s long-term foreign- and local-currency issuer default ratings to A-plus, bringing it into line with those of Standard & Poor’s and Moody’s.

Israel needs the liquidity to help finance the budget deficit this year, which is targeted at 2.9% of gross domestic product. But last year a swell of tax revenues left the government with a far smaller deficit than it projected, and that may happen again this year, treasury officials have said.

Nevertheless, officials wanted to tap the market to keep channels with investors open and establish a benchmark interest rate at a time when rates are low.

Israel last tapped the euro market in January 2014 when it raised 1.5 billion euros in 10-year bonds. Its last dollar issue was in March 2015 when it raised $1.5 billion. The current issue was managed by Bank of America Merrill Lynch, Barclays and Citigroup.