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Gov't of Israel bond rates up
October 5, 2021
9:41 am
Loonie
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These are up considerably this month compared to what they have been for some time.

Various terms, short and long, up to 3.25% CDN and 2.90% USD for 15 yrs. Eligible for registered funds.

I'm not for or against them, but it's an option for fixed term. They have never defaulted.

https://www.israelbonds.ca/rates/

October 5, 2021
9:55 am
mordko
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Up to 3.4% for 15 year CAD bond over 25K. Not liquid like other bonds. Not supposed to sell.

October 6, 2021
3:59 am
Bruford
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Bonds used to be "risk free return", they have now morphed into "return free risk". Lock in at your own peril.

October 6, 2021
7:48 am
Loonie
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There is no investment that is completely risk free, but there are different types and degrees of risk. Evaluate accordingly.

October 9, 2021
9:15 am
Doug
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Loonie said
These are up considerably this month compared to what they have been for some time.

Various terms, short and long, up to 3.25% CDN and 2.90% USD for 15 yrs. Eligible for registered funds.

I'm not for or against them, but it's an option for fixed term. They have never defaulted.

https://www.israelbonds.ca/rates/  

Thanks, Loonie. I agree with you that these are a very low risk investment. There's arguably some higher degree of political instability risk than other western liberal democracies, but in terms of general credit and liquidity risks, I would think they might even be lower than some western liberal democracies (perhaps even the U.S. or Canadian government bonds!).

That being said, the rates are pretty ho hum still. They don't offer much, if any, premium to Canadian bank GICs. For me, they'd have to pay about 0.50% premium or better across all timeframes before I'd consider them.

Cheers,
Doug

October 9, 2021
10:18 am
Norman1
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Israel bonds are low risk. But, they are risker than Government of Canada bonds.

Fitch long term rating of A+ estimates risk is around that of provincial bonds and large Canadian bank deposits:

Fitch
Long Term Rating
AAA Australia
Switzerland
Germany
USA
AA+ British Columbia, Province of
Canada
AA France
Saskatchewan, Province of
AA-
Bank of Montreal
Bank of Nova Scotia
Canada Life Assurance Company
Canadian Imperial Bank of Commerce
Royal Bank of Canada
Toronto-Dominion Bank
Alberta, Province of
Ontario, Province of
Quebec, Province of
United Kingdom
A+
HSBC Bank Canada
National Bank of Canada
China
Israel
A Manulife Financial Corporation
A- Brookfield Asset Management
TC Energy Corporation
TransCanada Pipelines Limited
BBB+ Enbridge Inc.
Rogers Communications
TELUS Corp.
October 9, 2021
1:21 pm
canadian.100
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State of Israel bonds were extremely popular for RSPs - I had them when the rates were better - if I remember correctly the rating for Israel Bonds when I owned them was at least the same or maybe slightly higher than for Province of Ontario. It is hard to find a GOVT bond which comes close even with their low rates.
They are very popular around the world for the reasons stated - a stable progressive democracy and a flawless reputation for repayment over I believe the last 70 years.
A govt bond is a different animal than a GIC and would attract a different buyer.

October 9, 2021
2:25 pm
Loonie
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Interesting.

Is there somewhere online where one can look up these kinds of ratings, or is it by subscription?

October 9, 2021
3:29 pm
mordko
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Interesting US is back to AAA regardless of all the shenanigans they have every few years about “debt ceiling”.

October 9, 2021
3:56 pm
Doug
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Norman1 said
Israel bonds are low risk. But, they are risker than Government of Canada bonds.

Fitch long term rating of A+ estimates risk is around that of provincial bonds and large Canadian bank deposits:

Fitch
Long Term Rating
AAA Australia
Switzerland
Germany
USA
AA+ British Columbia, Province of
Canada
AA France
Saskatchewan, Province of
AA-
Bank of Montreal
Bank of Nova Scotia
Canada Life Assurance Company
Canadian Imperial Bank of Commerce
Royal Bank of Canada
Toronto-Dominion Bank
Alberta, Province of
Ontario, Province of
Quebec, Province of
United Kingdom
A+
HSBC Bank Canada
National Bank of Canada
China
Israel
A Manulife Financial Corporation
A- Brookfield Asset Management
TC Energy Corporation
TransCanada Pipelines Limited
BBB+ Enbridge Inc.
Rogers Communications
TELUS Corp.

  

Thanks, Norman. Yeah, I knew Canadian and U.S. government bonds were rated higher, but was speaking more philosophically. 🙂

In any case, I hadn't realized Canada lost its AAA credit rating. I knew that B.C. did, but not Canada.

Cheers,
Doug

October 9, 2021
5:26 pm
Norman1
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I think Canada is near the edge between AAA and AA+.

Fitch rate rates Canada as AA+. S&P and DBRS still rate Canada as AAA. Moody's continues to rate Canada as Aaa.

October 9, 2021
5:29 pm
Norman1
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Loonie said
Is there somewhere online wher one can look up these kinds of ratings, or is it by subscription?

One will need a subscription to access the full reports, including detailed rationale.

However, most of the rating agencies will allow access to just the rating and some detail, either anonymously or after free signup.

October 9, 2021
6:19 pm
Loonie
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I was under the impression that Canadian gov't bonds (and provincial ones for that matter) pay diddly these days, but I don't follow these things and wouldn't know where to even look. We bought CSBs many years ago when they paid well, and PEI long bonds once when they also paid very well, but the PEIs matured a few years ago and I haven't really looked at them since.

As far as I can make out, Israel is chronically unstable politically, as it can never keep a coalition together, but it carries on anyway and the US will probably always prop it up, so it looks fairly safe - not that I've ever bought any of their bonds, yet.

This is probably not a good time for individuals to buy 10 or 15 year bonds in any quantity, even though these rates have gone up.
For those who just want to get their feet wet, the five year eMazel Tov bonds at 2.83%CDN or 2.63 USD are potentially attractive, with a minimum $36 investment and maximum $2500 purchase per month might be useful. What else is there in bonds in the same or better risk category that pays better? I ask because I simply don't know what's out there or where to look, so these looked OK to me.

October 9, 2021
9:19 pm
Norman1
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Loonie said

For those who just want to get their feet wet, the five year eMazel Tov bonds at 2.83%CDN or 2.63 USD are potentially attractive, with a minimum $36 investment and maximum $2500 purchase per month might be useful. What else is there in bonds in the same or better risk category that pays better? I ask because I simply don't know what's out there or where to look, so these looked OK to me.

I suspect those eMazel Tov (Good Luck) bonds are intended to be given as gifts or stocking stuffers. The 2.83% promo rate for a five-year bond is in junk bond territory. No bond issuer with an investment grade debt rating, like A+, needs to pay that kind of interest.

Unlike Israel, companies don't usually issue bonds continuously. One usually needs to contact a broker (full service or discount) to see what bonds they bought when issued and have in inventory now to sell.

I just looked on Scotia iTRADE:

  1. Province of Manitoba strip bonds, DBRS rating A(high), that mature 2026/09/05 are available with a yield to maturity of 1.635% per annum, before commissions.
  2. Riskier Brookfield Asset Management 4.82% bonds, DBRS rating A(low), maturing 2026/01/28 are available with a yield to maturity of 2.079%, before commissions.

In contrast, Government of Canada 1% bonds, DBRS rating AAA, maturing 2026/09/01 are being offered with a yield to maturity of 1.197%, before commissions.

October 9, 2021
11:21 pm
Loonie
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Thanks for attempting to answer my questions.

I don't understand what you mean by the eMazel Tov bonds being junk territory. They are issued by gov't of Israel just like all their other bonds, so what's the diff?

Perhaps you just meant that they are rates that would normally be associated with higher risk? Yes, I'm sure they are indeed intended as gifts for special occasions, as their name implies. Perhaps they hope the recipient will then consider buying their own later - a kind of loss leader rate.

But for someone who is a rate chaser, surely it doesn't make any difference whether the issuer had in mind gift-giving or not. As far as I can tell, there doesn't seem to be a requirement that the bond be a gift. The rates may parallel some junk bonds, but that's the point of getting a bargain, isn't it? - in this case a bond that returns more than you would otherwise expect to get for that risk level?

These bonds function more like GICs. The "catch", as I see it, is that they are not insured by a Canadian agency and there is a low maximum monthly investment, but that may be fine if you don't want to invest a lot or don't have a lot to invest. The rate offered will vary monthly, but you could theoretically invest 150,000 over five years (60 months) and basically keep it at that level if you chose to do so. Where else are you going to get 2.83 for an A+ bond (per Fitch)? Only WealthOne offers that right now in a GIC, and that's a promo rate, soon to expire. I've been watching these Mazel Tov rates for a while now, and they are always higher than the others on offer.

I appreciate seeing the examples from iTrade, but, if I understand them correctly, they pay significantly less for both lower and higher rated bonds. But that's what I wanted to know.

October 10, 2021
8:29 am
Norman1
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That's correct. I meant the rate is in junk bond territory and not the eMazel Tov Israel bonds themselves.

Yes, investment grade five-year bonds through iTRADE yield less than 2.83%. An investment grade bond paying a junk bond rate is very rare. The investment grade bond market is very efficient because it is dominated by institutional investors, like pension funds and insurance pools.

October 10, 2021
8:39 am
mordko
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These bonds are illiquid. T&Cs say that you are not permitted to sell them. Which is why they pay higher rates than other bonds with similar risk categories.

Clearly they are higher risk than government of Canada CAD bonds, because Canada can issue as many CADs as it wants and Israel can’t. Having said this, Bank of Israel has been independent for many decades and has a solid track record.

IMHO 15 year bonds with rates over 3% for some of your portfolio could be a good idea. We don’t know average inflation over the next 15 years but the market expects BoC to stick to its inflation target so there is a good chance you will end up in the money in real terms. Which is hard to come by these days. And if your duration is more than 5 years than 15 years means less risk.

October 10, 2021
9:20 am
Loonie
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Norman1 said
That's correct. I meant the rate is in junk bond territory and not the eMazel Tov Israel bonds themselves.

Yes, investment grade five-year bonds through iTRADE yield less than 2.83%. An investment grade bond paying a junk bond rate is very rare. The investment grade bond market is very efficient because it is dominated by institutional investors, like pension funds and insurance pools.  

Yes, they have effectively excluded institutional investors and very high net worth individuals by limiting the purchase amount. I guess you could call it a niche product, but it's going to be useful for some people. It could be a bookkeeping nuisance, though, if you bought them regularly. For me, that is actually the major deterrent.

October 10, 2021
10:09 am
mordko
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Institutional investors do hold Government of Israel bonds. Pretty sure thats who holds most of these issues, just not the eMazel Tov series.

October 10, 2021
10:12 am
Loonie
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mordko said
These bonds are illiquid. T&Cs say that you are not permitted to sell them. Which is why they pay higher rates than other bonds with similar risk categories.

  

Yes, that's why I said they function more like GICs (although I think without annual payout option). I don't think that necessarily explains the rate, as the difference between their rate and other bonds of similar risk is greater than this explanation would suggest. I think they are loss leaders.

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