Bloomberg News

Israel Sells $2 Billion of Dollar Bonds; Rates at Record Low

January 29, 2013

Israel raised $2 billion of dollar- denominated bonds, including its first 30-year notes in more than a decade, as the government took advantage of its lowest- ever international borrowing costs.

The country sold $1 billion each of 30-year bonds and 10- year securities, the Finance Ministry said in an e-mailed statement today. The 10-year notes were priced to yield 3.213 percent and 30-year debt 4.588 percent, the cheapest-ever yields on dollar bonds, according to the ministry.

Israel reduced its 10-year borrowing costs by a fifth since it sold securities a year ago at a 4 percent coupon, according to data compiled by Bloomberg. At yesterday’s sale, the 2023 bonds were priced at 125 basis points above similar-maturity U.S. Treasuries, the yield on which has tumbled 42 basis points to 1.96 percent from a 2012 high. Israel hasn’t sold 30-year debt in 15 years, the ministry said.

“Israel is taking advantage of the fact that U.S. Treasury yields are low,” Eyal Klein, chief strategist at Israel Brokerage & Investments Ltd., said by phone yesterday. “The election results have also contributed to a more optimistic scenario for Israel as investors are happy to see Netanyahu leading another government.”

Last week’s elections delivered Benjamin Netanyahu a third term as prime minister. Netanyahu seeks to trim the budget deficit to 3 percent of economic output this year from 4.2 percent in 2012, requiring 14 billion shekels ($3.8 billion) in spending cuts.

Foreign Investors

Foreign investors, including from the U.S., France and Britain, subscribed for 95 percent of Israel’s bonds, which received demand amounting to 4.5 times what was offered, the ministry said. “This is a sign of confidence in the Israeli economy,” Finance Minister Yuval Steinitz said in the statement.

The sale follows Dubai’s $500 million of 30-year debt issued Jan. 22. Mexico raised an additional $1.5 billion selling its 2044 bonds Jan. 7.

Near-zero interest rates in Europe and the U.S. are boosting developing-nation assets as investors seek out higher yields. The extra yield investors demand to own emerging-market debt instead of Treasuries fell to 2.38 percentage points on Jan. 3, the lowest level since April 2010, according to JPMorgan Chase & Co.

Two-Year Low

The Federal Open Market Committee, which will release a statement on monetary policy at the conclusion of a two-day meeting Jan. 30, says it is keeping rates low to ensure a strong recovery in the U.S. economy.

Israel is rated A1 at Moody’s Investors Service, the fifth- highest investment grade and equal to the Czech Republic, Oman and Estonia. Barclays Plc (BARC), Citigroup Inc. (C:US) and Goldman Sachs Group Inc. (GS:US) underwrote the deal.

The nation’s central bank left its benchmark interest rate unchanged yesterday at 1.75 percent after a surprise cut last month that brought key borrowing costs to the lowest level in more than two years

“For the first time in a long while, investment houses assess that the risks in the global economy have decreased,” the Bank of Israel said in an e-mailed statement yesterday, adding that inflation expectations for the year ahead indicate that consumer prices will be below the midpoint of their target range.

The yield on the government’s 4 percent dollar bonds due June 2022 rose six basis points, or 0.06 percentage point, to 3.01 percent yesterday, and added one basis point to 3.027 percent at the close in Tel Aviv. The shekel was trading 0.2 percent lower to 3.7318 a dollar. The currency was the best- performer among 10 emerging markets in Europe, the Middle East and Africa during the fourth quarter, according to data compiled by Bloomberg.

To contact the reporters on this story: Shoshanna Solomon in Tel Aviv at ssolomon22@bloomberg.net; David Wainer in Tel Aviv at dwainer3@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net


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