08/28/2012 22:39–When I made the decision to leave Israel’s private sector to serve as president and CEO of Israel Bonds, I came to an organization widely recognized – from ratings agencies to the Bank of Israel – as an important factor in building Israel’s economy.
Since starting at Bonds late last year, I have become increasingly aware of its continued relevance as a vital, indispensable asset for Israel’s economy, particularly in light of continued geopolitical uncertainty in the Middle East and fiscal difficulties plaguing many euro zone countries.
Indeed, if Greece, Italy, Spain and other failing eurozone countries had a dependable, proactive asset like Israel Bonds – with approximately $1.2 billion in annual worldwide sales – they would be better positioned to work their way out of their economic problems, as they could turn to a strategic support network providing the advantages of a large client base and considerably lower borrowing costs. This is why the Bonds story – with over $34b. in total worldwide sales – has generated queries from other countries, as well as the World Bank, seeking to replicate the Israel Bonds business model.
There are myriad reasons for the importance of the Bonds organization. First, when the Israel Treasury issues bonds on the overseas public market, such as Yankee Bonds, they are often long bonds with 10-year maturities. The Treasury endeavors not to raise funds more than once a year in order to maintain financial credibility with the market and rating agencies. Securities offered by Israel Bonds, on the other hand, complement Treasury-issued bonds by including short and medium-term maturities.
These instruments take advantage of the low rates prevalent in the current economic climate, with a resultant interest rate differential against government long bonds of approximately 2.75 percent – an annual savings of approximately $80 million on a comparable $3b. Israeli government bond issue – a major benefit to the Israeli economy.
FURTHERMORE, WHEN compared to the Israeli public market, Israel bonds are sold at rates that are extremely competitive and cost-effective. For example, a 3-year bond sold at 1.24% is more than 1% less than what Israel’s Treasury offers in the Israeli public market. (The higher Israeli domestic rate is a hedge against possible future inflation and exchange rate differentials.)…Read More>>