Since the outbreak of the war, Israel's risk premium has risen sharply, which affects first and foremost the costs of raising debt carried out by the Ministry of Finance in international markets in order to finance the needs of the economy during the war.
Since the beginning of the war, the State of Israel has raised about NIS 30 billion, of which NIS 16 billion is in foreign currencies on international markets.
Israeli dollar-denominated government bonds are currently trading at yields typical of countries with BBB credit ratings, while Israel's rating is currently significantly higher at -AA.
Modi Shafrir, chief strategist in Bank Hapoalim's trading room, photo: Ilan Bashor
Modi Shafrir, chief strategist in Bank Hapoalim's trading room, explained in a conversation with Israel Hayom that "Israel's dollar bonds in international markets increased from a spread of 85 basis points (above US bonds) to a spread of 150, indicating the level of the BBB or BBB+ rating.
"The Finance Ministry needs to raise a lot of money both domestically and internationally, and when it comes to large sums abroad, of course it has a high price, and it issues even higher margins than that, because it needs to raise money and it does it at high interest rates."
So this means that despite the fact that Israel's actual rating has not declined, Israel is already forced to pay high interest rates due to the increased risk. Will Israel's pessimistic pricing by the markets affect Israel's actual downgrade? It seems not so fast.
S&P, the rating agency that recently lowered Israel's rating horizon to negative, told us: "We are closely monitoring Israel's IPO activities, and it should be noted that Israel's cost of raising funds is a factor that we integrate directly into credit ratings, and now expects the government's interest/income payment ratio to average about 8% between 2026 and 2024."
S& Credit Rating Company P, Photo: Reuters
The rating agency's economists say: "However, despite their importance – since credit costs are one of the many factors influencing Israel's credit rating – we still believe that Israel's relatively strong fiscal situation before the war, the flexibility of monetary policy, and the Bank of Israel's many international reserves provide room for maneuver." It also noted that "in the event of funding disruptions, the government still has a remaining stake in a long-standing U.S. debt guarantee program."
The Ministry of Finance explains that while near the beginning of the war we witnessed a trend of rising yields, in recent weeks there has been an opposite trend of stabilization and even decline in yields. Israel has high access to local and international capital markets, as has been proven since the outbreak of the war, when Damina raised over NIS 20 billion in the tradable domestic market and more than NIS 20 billion in international markets during this period alone.
Ministry of Finance, Photo: Oren Ben Hakon
Meanwhile, the dollar continued to weaken against the shekel against the background of its weakening worldwide. On Friday, the dollar exchange rate declined to NIS 3.72.
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