Israel markets gain, risk premium slides on ceasefire with Iran

By Steven Scheer

JERUSALEM, June 24 (Reuters) - Tel Aviv stocks rose to near record highs and the shekel hit a more than two-year peak against the dollar on Tuesday after Israel and Iran agreed to a ceasefire following nearly two weeks of fighting, although both sides appeared to immediately violate the deal.

The broad Tel Aviv 125 .TA125 index was up 1.2% in afternoon trading, while the blue chip TA-35 .TA35 was 1.1% higher, for the market's sixth day of gains in the past seven sessions, driven by optimism that Israel had removed a threat of Iran developing nuclear weapons anytime soon.

"We won't know the results for a few months or even a few years but definitely it looks like Israel was the winner," said Gil Dotan, chief business officer at the IBI Investment House.

After six straight sessions of gains that saw shares hit all-time highs on Sunday, share indexes declined on Monday.

Since Israel began striking Iranian nuclear facilities, ballistic missile factories and military commanders on June 13, the indexes have risen some 8%. The United States also bombed Iranian nuclear sites on Sunday.

Iran responded with daily missile barrages against Israel.

Dotan noted that even before the conflict there was a bullish vibe in the market following good quarterly results from financial firms and defence companies that carried into the conflict with Iran.

"It's really a game changer that will change the economy, growth of the economy, in many sectors," Dotan said, adding that Israel's tech sector has been shifting towards defence and further increase the demand for skilled workers.

Although weaker on Tuesday, Elbit Systems ESLT.TA, Israel's largest defence firm, is up 60% so far in 2025.

The shekel ILS= appreciated 1.3% against the dollar to 3.40, its strongest level since February 2023.

"US involvement on Iran is seen as potentially beneficial for Israeli FX and rates, in our view, as we anticipate that it might contribute to a faster resolution to the conflict and strengthen Israeli defences," said Citi analyst Luis Costa.

Markets globally rose, oil prices plunged and the dollar weakened on improved risk appetite after U.S. President Donald Trump's announcement of the ceasefire.

It would end 12 days of air attacks between Israel and Iran - but it remains fragile, with Trump himself accusing both sides of violating the deal almost immediately after it took effect.

Israel's 5-year credit default swap, which is the cost of insuring government debt against default, dropped to 93 basis points, 14 bps below Monday's close and the lowest since early April, according to S&P Global Market Intelligence.

The ceasefire "is anticipated to lead, in our view, to further positive short-term reactions in the financial markets," said Ofer Klein, head of economics and research at Harel Insurance and Finance.

"As Israel’s risk premium declines, we expect to see favourable outcomes in bonds and equities, along with continued appreciation of the shekel."

"Lower inflation, a stronger shekel, and a declining risk premium for Israel all support an earlier rate cut — September now looks plausible, with additional cuts likely in 2026," he added.

Israel's international government bonds XS2022179662=TE also rose.