Israel Bonds Get Nailed
Written by: Aaron Katsman | August 8, 2007
By Aaron Katsman
IsraelNewsletter.com
With the recent global market volatility, investors have headed for cover, manifesting itself in a huge run up in US Treasury bonds, UK Gilts and other government debt. One country which didn’t experience this phenomena was Israel. Local government fixed rate bonds got hammered, losing more than 6% in the span of a week.
Why did this happen?
Starting in mid-July, foreign investors dumped more than $603 million in short-term Makam bonds, the Israeli equivalent of T-bills. Sensing that Bank of Israel Governor, Stanley Fischer, was going to start raising interest rates, which he did, after signs of inflation were starting to pick up, foreigners ran for the exits.
This shouldn’t have come as a surprise. As I have posted, underlying inflation in Israel has been surging, while the CPI number has been showing muted inflation because of the weakness in the US Dollar. Now that the USD has strengthened, look for continued interest rate hikes, resulting in more downward pressure on Israeli Government debt.
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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
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