Israeli Investors Explore Buying Alphabet Bonds Amid High Yields

Israeli investors are increasingly looking into purchasing bonds issued by Alphabet, Google's parent company, attracted by yields around 7.2%. This interest has highlighted significant differences between the U.S. bond market and the Tel Aviv Stock Exchange, with U.S. investors often facing higher costs and less accessible services.

The specific bond drawing attention is a 20-year series issued by Alphabet in Australian dollars, which initially offered a 6.98% yield, the highest the company had ever provided. Since its issuance, the bond's price has fallen, increasing its yield. Investors buying this bond are exposed to fluctuations in the Australian dollar against the Israeli shekel.

In contrast, the Tel Aviv Stock Exchange offers a more streamlined process for corporate bonds, akin to stock trading. Investors can buy bonds in smaller denominations, with transparent pricing throughout the trading day and lower commissions. The U.S. corporate bond market, largely over-the-counter, involves dealers and banks, with bid-ask spreads that can add to costs, especially for smaller transactions.

Commissions and fees also differ significantly. While Israeli banks may charge up to 0.9% for foreign securities, with digital channels offering discounts, foreign brokers like Interactive Brokers offer lower commission rates on U.S. corporate bonds, though dealer spreads still apply. Tax implications also vary, with the U.S. exempting foreign investors from taxes on corporate bond interest under certain conditions, while Israel imposes a 25% tax on foreign currency-denominated securities.

For Israeli investors seeking diversification and easier access, U.S. bond ETFs are a common alternative. These funds offer exposure to hundreds of corporate bonds but lack a maturity date, meaning their prices continuously react to interest rate changes. Alternatively, iBonds ETFs, which hold bonds maturing in a specific year, offer a closer approximation to individual bond investing with diversified risk.