Israeli Corporate Bond Market Sees Record Issuance Amidst Falling Interest Rates

The Israeli corporate bond market concluded the Hebrew year 5786 with a significant surge in fundraising, reaching NIS 177 billion, a 17% increase from the previous year and an 84% jump from two years prior. This boom is attributed to a series of five interest rate cuts by the Bank of Israel, bringing the rate down to 3.25%, which stimulated investor appetite for higher yields and encouraged companies to refinance debt at lower costs. The financial sector and government companies were prominent issuers, with banks alone raising approximately NIS 85 billion, nearly half of the total market volume. The five largest banks accounted for NIS 77 billion, led by Leumi with NIS 29 billion in debt issuance, followed by Hapoalim, Discount, Mizrahi Tefahot, and First International Bank. The top ten issuers represented about 51% of all bonds issued.

In contrast, the real estate sector experienced a slowdown, with bond issuances totaling around NIS 50 billion, an 11% decrease from the previous year, reflecting industry challenges. However, June saw a notable spike with over NIS 8 billion raised by real estate companies. The infrastructure and government sector saw the most dramatic growth, with NIS 8 billion raised, a 190% increase, largely driven by Israel Electric Corporation (NIS 4.5 billion) and Mekorot Water Company (NIS 2.9 billion).

The surge in fundraising also led to a decrease in credit spreads, the difference between corporate and government bond yields, indicating investors were willing to accept lower risk premiums for corporate debt. While most rating categories saw improved yields and narrowed spreads, the Baa.il category, representing weaker credit profiles, did not experience the same improvement, suggesting investors remain selective. Credit spreads reached a three-year low by the end of August, with yields on government-linked bonds ranging from 0.5% to 2.1% and index-linked bonds showing similar spreads.

Despite recent scandals involving foreign companies (BVI) that raised funds in Israel and subsequently faced financial irregularities, their bond issuances in the past Hebrew year amounted to NIS 7.9 billion, a decrease from NIS 10.2 billion the year before. The Tel Bond-Global index, which tracks these BVI companies, currently shows a yield to maturity of about 8%, and has fallen 1% over the past year, contrasting with positive returns in other major bond indices. The overall market value of corporate bonds traded in Tel Aviv reached approximately NIS 693 billion, an 18% increase year-over-year, with only about 1% classified as "junk bonds" trading at double-digit yields, a significant improvement from nearly a fifth two years ago.