The recent Lebanon war has sharply boosted sales of Development Corporation for Israel/State of Israel Bonds in the US and Canada. Ministry of Finance representative in New York Zvi Halamish told “Globes” “A comparison with Bonds sales before the war with the corresponding period in 2005 shows that there has been a 20% rise in sales in the US and a 15% increase in Canada.
Halamish said that there had been a “strong surge” in sales, and this was still continuing almost two months after the war. The increase in sales is especially noticeable given that the bonds’ margins are lower today than in previous years. The word “margin” refers, in this case, to the difference between the yield on Israeli and US T-Bills.
Last week, Ministry of Finance accountant general Dr. Yaron Zalika reached agreement with the Israel Bonds management on new one-year and three-year bond issues on the US and Canadian markets. The new securities follow the issues of the two-year Jubilee and two and five-year savings bond issues that Zalika initiated earlier this year.
Halamish said that the new issues extend the range of bonds available to investors in North America, many of whom are Jews, and they will also serve as a further tool in shortening the duration of Israel’s external debt.
The finance raised by Israel Bonds is one of the more important sources of capital for the government. It is expected to sell bonds worth $1 billion in 2006. Israel Bonds management believes that the sales will increase to $1.5 billion in 2007. Halamish, however, said that the Ministry of Finance would also be satisfied with $1 billion sales next year, since it expects revenue from the possible sale of further stakes in Bank Leumi (TASE: LUMI) and the privatization of Oil Refineries Haifa. These proceeds will be used be used to finance the government deficit.
Israel Bonds securities are priced by the Ministry of Finance office in New York and they are audited regularly. Prices are based on the interest rate on the day of pricing, the Israeli government’s pricing margin on the secondary market and the grossing up of Israel Bonds’ costs.
Bonds were previously priced on a monthly basis, but Zalika together with Israel Bonds president and CEO Joshua Matza switched to pricing every two weeks. The change will save the Israeli government tens of millions dollars a year in interest payments.
Pricing will be made weekly as from the beginning of 2007, in line with standard practice in for retail offerings in the US business sector. The change will enable better control over bond prices in view of the changes taking place in the secondary market, and it will further lower the cost of Israel’s bond issues.
Published by Globes [online], Israel business news - www.globes.co.il - on October 11, 2006
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006