An analysis of the Bank of Israel’s financial stability report reveals that in July the bank purchased corporate bonds in the amount of only NIS 600 million, out of a total framework for the purchase of NIS 15 billion. In the bond market, the Bank of Israel’s purchases are considered a significant figure that signals that the bond market is functioning and there is still a lot of ammunition in the bank’s stack in case the bond market finds itself in a liquidity crisis.
An interesting statistic is the volume of government bond purchases made by the Bank of Israel, which reveals that by July, the central bank had purchased NIS 23.9 billion.
The balance of the plans operated by the Bank as of the end of July (in cumulative amounts)
Source: Bank of Israel
It will be recalled that the Bank of Israel’s acquisition program includes bonds only of companies (A) and above, and does not include bonds of foreign companies, bonds with a capital component and bonds that are not linked to the shekel and are not at a fixed interest rate. These are bonds that make up about 75% of the market.
It should be noted that at present the main source of government funding for the monstrous deficit is the bond market when without the Bank of Israel would have purchased such quantities the yields on government bonds would have started to rise and with them the yields on corporate bonds.
It should also be noted that the foreign exchange reserves of the Bank of Israel are currently sufficient, which leaves the Central Bank a sufficient range for shekel bond purchases without shocking the markets, but it is clear that the Bank of Israel cannot “drink” all shekel government bonds and the government will soon be forced or It is too late to raise large funds abroad, which will almost certainly lead to an increase in the interest rates paid by the government and even to a downgrade of Israel’s debt rating.
It should be noted that currently the debt-to-GDP ratio in Israel is 76% and the estimates in the Treasury are that in the 80% debt-to-GDP ratio, Israel’s credit rating will suffer. In the first stage, this does not mean too much, but over time and with ongoing political-economic-medical chaos in Israel, this will have consequences for the interest rates that Israel will pay.
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