Israel benefits from “an active diaspora Bond program... in the event of market disruption.”— Fitch Ratings Agency, May 2016
Canada-Israel Securities, Limited (CISL) sells Israel bonds in Canada and is part of a worldwide network of broker-dealers that sell Israel bonds in the United States, Europe and Latin America. For the past three years, annual U.S. sales have exceeded $1 billion. Prior to 2011, annual U.S. sales averaged approximately $600 million. Worldwide sales since the first Israel bonds were issued in 1951 have surpassed $41 billion.
For Israel, having the support of Israel Bonds - a reliable and independent financial pipeline - is an invaluable and strategic national resource, especially since Bonds clients have proven time and again that when Israel is in the midst of a crisis, they do not walk away. Fitch Ratings confirmed this in an opinion issued in May 2016, in which the agency noted that Israel benefits from “an active diaspora bond program... in the event of market disruption.” By highlighting Israel Bonds, Fitch recognizes that the diaspora can be a unified force for Israel (individual Israel bonds are not rated).
Investors value Israel’s impeccable record of having never defaulted on payment of principal or interest on Israel bonds. At a time of continued volatility in financial markets, Israel bonds are recognized as reliable investments, dispelling, once and for all, outdated misconceptions of Israel bonds as ‘charity.’ Additionally, the fact that numerous retail transactions are in $25,000 and under highlights the widespread appeal of investing in Israel bonds.
Retail clients – individuals and Jewish organizations – comprise approximately 65 percent of worldwide sales. The remaining 35 percent encompasses institutional investors, including U.S. states, municipalities, financial institutions, corporations, foundations and others.
Throughout the years, Israel Bonds has successfully developed a sizeable, diverse client base even the largest financial firms would envy.
The Bonds organization’s client base is augmented by high-profile institutional investors who make substantial Israel bond investments. The immediate name recognition of these investors gives Bonds retail clients assurance they are making the same investment as institutions with the highest fiduciary standards.
Israel’s economy is dynamic, full of innovative spirit and groundbreaking entrepreneurship, and currently well-positioned to outpace most other developed nations, particularly with the revenue stream being generated through its massive natural gas fields. Investing in Israel bonds is a means of becoming a stakeholder in one of the world’s most resilient economies.
Proceeds from the sale of bonds have played a decisive role in Israel’s rapid evolution into a groundbreaking, globally emulated leader in high-tech, cleantech and biotech. Israel bond capital has helped strengthen every aspect of Israel’s economy, enabling national infrastructure development. Today, expanded transportation networks enabled by investments in Israel bonds help facilitate shipment of ‘Made in Israel’ technology around the world, enhancing national export growth.
Israel’s Treasury endeavors not to raise funds more than once a year in order to maintain fiscal credibility with financial markets and ratings agencies. When the Treasury does issue bonds in overseas public markets, they are usually long-term bonds with 10-year maturities. Securities offered by the Bonds organization complement Treasury-issued bonds by including short and medium-term maturities that are sold on a daily basis.
Surpassing $1 billion in U.S. sales annually for each of the past three years counters perceptions that Israel bonds are bought in great numbers only when Israel faces a national emergency. The sales can be attributed to recognition of the value of investing in Israel bonds, and, especially, confidence in the Israeli economy. The accomplishments of the past three years highlight the success the Bonds organization has had in shifting the narrative from the geopolitical to the economic.
While Israel successfully utilizes public markets for debt financing, it almost certainly would not be able to rely solely on these markets in times of economic or security challenge. Under either of those circumstances, it is more than likely Israel’s credit rating would drop, and, as a result, the cost of financing through capital markets could become prohibitively expensive.
Were Israel not to have access to the Israel Bonds client base and urgently need to re-establish it, the cost of securing necessary interim credit lines from commercial banks would be substantial. Regional conflict could also lead to credit lines not being extended to Israel.
Although the U.S. is one of Israel's staunchest allies, its debt burden would make it challenging to reinstitute a significant civilian aid program for Israel during a crisis.
The Bonds organization is comprised of a professional team with a unique skill set. Similar to the staff of leading financial firms, Israel Bonds human capital is a valuable corporate resource.
Attempting to create the Bonds sales and management team during a national emergency for Israel would take at least 18 months due to financial industry regulations and required examinations. Obviously, the idea of Israel trying to withstand an economic and security crisis for 18 months is inconceivable.
Were a crisis to occur, it is unlikely another brokerage firm would be able to secure capital from the Jewish community - and other sources of support - as efficiently as the Bonds organization. Additionally, Israel Bonds has the advantage of its volunteer lay leadership, which, through extensive networking and valuable introductions, helps facilitate numerous accomplishments.
Operational costs of the worldwide Israel Bonds enterprise - approximately 3 percent of bonds sold - compare favorably when measured against similar-sized brokerage firms. Moreover, securities offered by Israel Bonds take advantage of current low interest rates, a major benefit to Israel’s economy. The 2, 3, 5 and 10-year securities currently offered by Israel Bonds average out to a duration of just over four years, and an average interest rate of approximately 2.0.
Knowing Israel will never be defeated on the battlefield, BDS supporters employ confrontational economic tactics on a wide variety of fronts. Every Israel bond investment has the added value of sending an unmistakable message to BDS advocates: Israel’s economy will remain strong.