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State of Israel Bonds
Old 07-11-2016, 09:18 AM   #1
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State of Israel Bonds

Does anyone have thoughts on Israel bonds as an investment? My sense is most people who buy these bonds do so for ideological reasons (and perhaps other people would avoid them for ideological reasons). I am certainly NOT proposing a debate about that. Just looking at it from an investment perspective. The interest rates paid appear to be around 2x what US treasury bonds with a comparable maturity pay. Of course, US bonds are presumably a safer investment. But Israel has not defaulted on any bonds and I suppose is unlikely to do so. Any (non-political) thoughts?
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Old 07-11-2016, 09:56 AM   #2
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Exchange rate risk.

XE.com - USD/ILS Chart

Same reason why as a European I won't buy US bonds.
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Old 07-11-2016, 10:32 AM   #3
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But these are US dollar denominated bonds, so I am not sure the USD-ILS exchange rate is relevant.
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Old 07-11-2016, 12:07 PM   #4
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But these are US dollar denominated bonds, so I am not sure the USD-ILS exchange rate is relevant.
I don't know where to find these, or anything else.

However, my question would be are the bonds truly in USD, or are you simply buying ILS Bonds in ILS currency (risk) which are shown in USD ?
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Old 07-11-2016, 12:16 PM   #5
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They are actually issued in USD. Rates here: Israel Bonds | Invest in Israel
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Old 07-11-2016, 12:37 PM   #6
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Oh well, carry on then

Credit rating is a bit lower and some countries are probably not allowed to buy them, which could explain the higher yield.

Also, double check taxation rules. Specifically if there is a withholding tax on the interest.
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Old 07-11-2016, 05:27 PM   #7
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So the rate is about .25% higher than what you can get for a jumbo CD.
This is not worth the added risk, since the CD is FDIC insured, whereas these bonds have no secondary market so really hard or impossible to sell for capital gain, therefore limited to the interest.

There is the risk they won't be repaid should something bad happen to that country by their very close enemies.
These are unsecured bonds so if default happens, too bad.
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Old 07-11-2016, 06:52 PM   #8
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I assume there are multiple mutual funds specializing in emerging market government bonds, many limited to dollar-denominated bonds and / or currency hedging.

Israel is not the only EM country paying higher-that-U.S. rates on their sovereign debt.

What is a persuasive argument for concentrating an EM bond asset allocation to the issue of a single country?
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Old 07-11-2016, 08:12 PM   #9
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I assume there are multiple mutual funds specializing in emerging market government bonds, many limited to dollar-denominated bonds and / or currency hedging. Israel is not the only EM country paying higher-that-U.S. rates on their sovereign debt. What is a persuasive argument for concentrating an EM bond asset allocation to the issue of a single country?
You are correct there are many EM bond funds. For example, GSDAX, MEDEX, VGOVX, DBLEX, etc. But there is a difference between investing in a bond fund and buying individual bonds with the intention of holding them to maturity -- so it is sort of apples and oranges.

Also, most of the EM issuers appear to have materially lower credit ratings than Israel. So an EM bond fund would be expected to have more more credit risk and more volatility than Israel bonds. The EM bond fund will also have more upside. So it is not like one is "better" and one "worse." It is just a different investment.

Like any individual bond, I think the analysis involves comparing credit risk to yield. I suppose that involves a guess as to whether Israel (or any other sovereign issuer) is likely to default.
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Old 07-11-2016, 09:13 PM   #10
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Fair points, medved.

I agree credit risk vs. yield is the key for buy-and-hold individual bond purchases.

Speaking for myself, I would diversify across multiple countries and maturities if I chose to invest directly in international bonds. But I won't be, because I know my limitations. My only ability to evaluate individual issuers' credit risks is limited to a Moody's rating. And maybe measuring default tail risk by looking here (Israel does not appear):
https://en.wikipedia.org/wiki/List_o...gn_debt_crises

Dollar-denominated debt is also attractive to me.

So, hypothetically, why would one choose an A-rated Israel bond over a BBB-rated Panama bond with a better yield? Beats me, but the buyer having an allegiance or affinity for Israel is certainly one answer.

Panama debt data, for the curious:
https://cpublico.mef.gob.pa/index.ph...mid=81&lang=en
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