Israel raised a record $8 billion in its first international bond sale since the Oct. 7 Hamas attacks, with very high demand even after Moody’s gave Israel its first ever sovereign credit rating downgrade last month.
Needing additional funds to cover a widening budget deficit due to the war against the Palestinian Islamist group, Israel sold $2 billion of five-year bonds, and $3 billion each of 10 and 30-year bonds, the Finance Ministry said on Wednesday.
Analysts at Morgan Stanley had estimated the sale would be $4-6 billion due to Israel’s “significant funding needs”.
Demand for the dollar-denominated offering launched on Tuesday reached $38 billion, the highest ever for an Israeli international debt issue. Some 400 investors from 36 countries participated, the ministry said, noting the issue would allow for lower financing costs.
Accountant General Yali Rothenberg said the results showed an “unprecedented expression of confidence in Israel’s economy by the world’s largest international investors”.
“The ability to raise debt in the international markets, even during a war, in significant volumes and high coverage ratios, shows the high accessibility of the State of Israel to the markets,” he said.
Still, Rothenberg noted, the bulk of Israel’s debt raising would take place in shekels in local markets, where demand in bond auctions from institutional investors has also been robust.
Israel’s parliament is slated in the coming weeks to approve an amended 2024 state budget with tens of billions of added spending to help finance the war, with the budget deficit being raised to 6.6% of gross domestic product from a prior 2.25%.
Results of the bond offering showed that Israel would pay 135 basis points over comparable 5-year U.S. Treasuries, 145 basis points over 10-year Treasuries and 175 basis points over U.S. 30-year bonds – about 25 to 30 basis points below initial guidance.
U.S. five-year bonds currently yield 4.15%, 10-year Treasuries are at 4.16% and 30-year notes yield 4.30%
While most of Israel’s bonds and those issued by its big companies have recovered in price terms from post-October attack sell-offs, the impact remains substantial.
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The government’s bonds have underperformed the most widely-followed global emerging market bond index by just over 10 percentage points over the last six months and Moody’s cut the country’s credit rating last month.
BNP Paribas, BofA Securities, Deutsche Bank and Goldman Sachs led the offering.
