Israel to Join Key World Index of Gov’t Bonds

Wave of foreign investment expected after FTSE Russell sets April 1 for inclusion in its WGBI

A Israel Shekel note and a U.S. Dollar note are seen in this June 22, 2017.
\ THOMAS WHITE/ REUTERS

Israel will be added to the FTSE World Government Bond as well as the FTSE World Inflation Linked Securities Index in April, in a move expected to spur a wave of foreign investment in Israeli bonds.

Israeli government shekel bonds will be added to the index on April 1 and are expected to comprise 0.29% of the based on 13 bonds with $68.2 billion in market value, said FTSE Russell, which is owned by London Stock Exchange.

In addition, the Israeli government’s inflation-indexed bonds will join the FTSE World Inflation Linked Securities Index on the same date and it is anticipated that these bonds will make up 1.78% of the index on a market value weighted basis, the statement added.

“There was a strong consensus from index users that the Israeli government bond market meets the thresholds of our highest accessibility level,” said Nikki Stefanelli, Head of Fixed Income Index Policy, FTSE Russell.

The WGBI is used by global investors to benchmark their portfolios, thus ensuring a flow of international capital to the local market. Estimates are that demand for Israeli government bonds will grow by $4 to $5 billion.

Joining the FTSE indices is seen as a seal of approval for the economy and local financial market. Only 22 countries are included in these indices and the last time a new country was admitted was in 2010.

“Entry into the WGBI is an achievement and an international vote of confidence in the Israeli economy. Israel’s strong credit rating and the inclusion of Israel in leading world indices, like the WGBI, will increase foreign investment that enables the economy to grow,” said Finance Minister Moshe Kahlon.

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Globally, Israel’s entry was overshadowed by FTSE Russell’s decision not to admit China, which had been lobbying hard for inclusion of its $13 trillion bond market.

Attracting foreign investors into China’s markets could help fund domestic investment and counter rising capital outflows as the local economy slows and the Chinese currency falters.

China remains on FTSE Russell’s watch list for a potential upgrade in March.

TheMarker reported in April that FTSE Russell has considered putting Israel into the WGBI after it was assigned a Market Accessibility Level of 2 as part of an inaugural review. The company assigns countries a Market Accessibility Level of 0, 1 or 2, with 2 representing the highest level of accessibility for foreign investors. A minimum of 2 is required to be in the WGBI.

The Israeli bond market has been trading for several months on the assumption that WGBI status was a done deal, but now that it is official it is expected to continue pushing yields in government bonds lower, especially for long-term bonds. The shekel is expected to appreciate, as well.