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Gov't of Israel bond rates up
October 10, 2021
10:26 am
mordko
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Loonie said

Yes, that's why I said they function more like GICs. 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.  

Combination of illiquidity vs bonds, lack of CDIC insurance vs GICs = higher rate. The rate is at the point to provide Israel with enough CADs or USDs. Not charity. But I think its a good deal and has a place in a diversified portfolio.

October 10, 2021
10:43 am
canadian.100
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Not sure why there would be any loss leaders required - they are widely sold - with sales increasing annually -

If you check Wiki etc. for S of I Bonds it says

Over 90 US State and municipal pension and treasury funds have invested more than $3 BILLION USD in S of I Bonds to date. (I suspect Canada. UK, Australia etc. also invest but on a smaller scale than the US buyer market)
Worldwide sales of S of I Bonds $46 Billion USD since 1951. Annual sales keep increasing are now about $1.3 B USD.
Buyers include - Corporations, insurance companies, associations, unions, banks, Financial Institutions, universities, estates, trusts etc.

That these bonds are not cashable before maturity is a non issue for the above buyers like pension funds, university endowments / foundations etc. They can wait 5 years, 10 years etc. or whatever their plan is on cash flow requirements.

October 10, 2021
10:45 am
canadian.100
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canadian.100 said
Not sure why there would be any loss leaders required - they are widely sold - with sales increasing annually -

If you check Wiki etc. for S of I Bonds it says

Over 90 US State and municipal pension and treasury funds have invested more than $3 BILLION USD in S of I Bonds to date. (I suspect Canada. UK, Australia etc. also invest but on a smaller scale than the US buyer market)
Worldwide sales of S of I Bonds $46 Billion USD since 1951. Annual sales keep increasing are now about $1.3 B USD.
Buyers include - Corporations, insurance companies, associations, unions, banks, Financial Institutions, universities, estates, trusts etc.

That these bonds are not cashable before maturity is a non issue for the above buyers like pension funds, university endowments / foundations etc. They can wait 5 years, 10 years etc. or whatever their plan is on cash flow requirements. 
However, I am sure they do not buy the small value bonds.
 

October 10, 2021
12:01 pm
Bill
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The higher rate might also have to do with the political risk (e.g. check out the young, progressive faction of the governing USA Democrats and their attitude re continued military support for, or investing in, Israel - sea change from just a few years ago) present here in a way that doesn't exist for most countries. That's what immediately came to mind for me re this topic of Israeli bonds, maybe I'm not the only one.

October 10, 2021
2:04 pm
Loonie
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Bill said
The higher rate might also have to do with the political risk (e.g. check out the young, progressive faction of the governing USA Democrats and their attitude re continued military support for, or investing in, Israel - sea change from just a few years ago) present here in a way that doesn't exist for most countries. That's what immediately came to mind for me re this topic of Israeli bonds, maybe I'm not the only one.  

Yes, there are political issues with Israel as I noted earlier, Gaza and the Occupied Territories being among them. But these would all be considered, I expect, in Fitch and others' ratings. If they're not, then the ratings are not reliable.
So the question is more about what Israel pays vs other issuers in the same rating category.
Israel has always had political issues, including the Seven Day war in 1967, but they have always paid out on their bonds.

October 10, 2021
2:15 pm
Loonie
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canadian.100 said
Not sure why there would be any loss leaders required - they are widely sold - with sales increasing annually -
 

Yes, I think they are generally considered a solid investment - and why wouldn't they be as they have a good rating, have always paid through thick and thin, and the country has the support of the US.

Maybe loss leader isn't the right term but the eMazel Tov bonds do seem to be a kind of promotional rate to introduce them to giftees or possibly as a reward or encouragement for parents and grandparents who have invested more for themselves. Even RBC has promos - I'm using one of them right now.

Yes, with a long horizon, it is of no importance whether they are locked in for a long time. Large pension plans have infinite horizons and will likely just reinvest when the term is up.

People can buy them or not. I just thought they might be of interest when there is so little to choose from in GICs.

October 10, 2021
3:00 pm
Bill
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I believe Israel wouldn't survive/exist without USA support, I believe at some point in the future USA will no longer support Israel, thus that's the risk that would prevent me from buying long-term bonds from there.

October 10, 2021
3:40 pm
mordko
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Bill said
I believe Israel wouldn't survive/exist without USA support, I believe at some point in the future USA will no longer support Israel, thus that's the risk that would prevent me from buying long-term bonds from there.  

There have been several periods of time since 1948 when US did not support Israel, eg in mid 50s when Israel was a lot weaker than today. It got by. In fact, US blockaded supply of weapons during the War of Independence of 1948 when Israel was much weaker than opponents which were armed and militarily supported by the British. Unlike ourselves, they have means to defend themselves.

I wouldn’t worry too much about either Israel or these bonds.

October 11, 2021
9:01 am
Norman1
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Loonie said

Maybe loss leader isn't the right term but the eMazel Tov bonds do seem to be a kind of promotional rate to introduce them to giftees or possibly as a reward or encouragement for parents and grandparents who have invested more for themselves. Even RBC has promos - I'm using one of them right now.

That's exactly what the generous 2.83% rate on the low-investment eMazel Tov bonds is: A marketing initiative, like those youth accounts from the banks.

This is from A Bond for (and with) Israel…(Jun 21, 2013):

“In 2002, with [violence] raging in Israel, Canadian Jews were looking for ways to show support for the Israeli civilian population being targeted by suicide bombers. The parents of one school suggested that their kids don’t need the games or books that were the standard [bar or bat mitzvah] gifts — and that typically cost around $30-$40. Rather, the gift of an Israel Bond would be more meaningful. The school’s management was very supportive of the idea — and soon other schools were following suit. The kids responded very enthusiastically: They were providing immediate support for Israel and, when the bonds matured five years later, they would receive a significant sum which they could use to help finance their college education, or simply re-invest.”

As with the general Israel Bonds story, this local initiative also not only outlived the specific emergency situation that gave rise to it, but actually expanded much further than anyone could have foreseen. Savatti notes that the Young Builders of Israel program, as it has come to be known, now encompasses every Jewish school in Canada and has raised some $2 million to date.

But she [Raquel Benzacar Savatti, chief customer officer of Canada Israel Securities Limited] and her colleagues view the absolute amount of money as a secondary consideration, compared to another critical metric. “Through this program there is an automatic expansion in the number of Israel Bond holders every year, and these young recipients thereby learn about both Israel and investments. As a result, all of them are likely to continue investing in Israel Bonds as adults.”

October 11, 2021
9:46 am
Loonie
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If it's really this intentional, it makes me wonder if one is allowed to buy them for oneself, but, still, I see nothing forbidding it. The proceeds could always be used to pay the deserving child's tuition upon maturity, allowing the purchaser more discretion. And you don't have to be Jewish to buy them.

I must say, I do appreciate a promo that never expires, even though the rate is revised monthly. sf-smile

October 11, 2021
11:08 am
Norman1
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I don't think they mind if people bought the 2.83% eMazel Tov bonds for themselves.

Amounts would be modest as one is limited to purchasing a maximum of $2,500 per month.

The 2.83% rate is 0.53% above the 2.30% rate on the five-year Jubilee bonds that require a minimum $25,000 purchase. The marketing cost is modest.

Encouraging non-Jewish people to learn about Israel and investments is beneficial too!

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