Israel taps markets with dollar bond issue following Gaza ceasefire

By Steven Scheer

JERUSALEM, Jan 6 (Reuters) - Israel is tapping international markets on Tuesday with a dollar-denominated offering of five-, 10-, and 30-year bonds, seeking to take advantage of a positive market environment and Israel's improved fiscal position since the ceasefire in Gaza.

Yali Rothenberg, Israel's Accountant General in the Finance Ministry, told Reuters the offering could be around $5 billion, as in 2025, but it was too early to determine the size since the issue just launched would not be completed until the end of U.S. trading.

He said the time was ripe for an offering given typically strong investor demand in January, along with the fact that spreads on Israeli bonds have narrowed and easing global inflation has led to lower interest rates. Israel's shekel ILS= is also at a four-year peak versus the dollar.

"It is as good a time as ever. There is no point in waiting," Rothenberg said. "Given the sharp decrease in our spreads we think this is a very good entry point to the market."

About 15% of Israel's financing needs come from annual foreign bond issues, with 85% in the domestic bond market.

NARROWER SPREADS

In the wake of downgrades from all three major credit rating agencies in 2024 due to the Gaza war that sent defence spending soaring, Israel last February sold $2.5 billion of five-year bonds at 120 basis points over comparable U.S. Treasury yields and another $2.5 billion of 10-year bonds at 135 basis points over U.S. Treasuries. It sold $8 billion in 2024 at as much as 145 basis points over Treasuries

S&P in November raised Israel's ratings outlook to "stable" from "negative."

"We think that spreads will roughly be around the same that we had before the war - roughly 100 basis points for the 10-year," Rothenberg said, referring to the two-year war in Gaza between Israel and Palestinian militant group Hamas that began in October 2023.

The expected narrower spreads are attractive for Israel to lock in while investors also seem content as prices may be less attractive for them in the future, he said.

Israel did road shows in Asia, Europe and the United States before the offering and found good demand, Rothenberg said, adding that Israel's financial and fiscal position was "very strong".