Israel bonds [how to evaluate political risk?]

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bsteiner
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Israel bonds [how to evaluate political risk?]

Post by bsteiner » Sun Jan 11, 2015 3:14 pm

Israel bonds now pay 2.76% for 5 years or 3.55% for 10 years, in each case in U.S. dollars. I think the minimum needed to get these rates is $25,000.

I don't know how to evaluate the political risk.

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Re: Israel bonds [how to evaluate risk?]

Post by LadyGeek » Sun Jan 11, 2015 3:41 pm

This thread is now in the Investing - Theory, News & General forum (theory). I also retitled the thread.
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Re: Israel bonds [how to evaluate political risk?]

Post by richard » Sun Jan 11, 2015 3:54 pm

Interest rates are usually a good proxy for risk - the higher the rate, all other things being equal, the higher the risk. There are some complications - for example US treasuries are yielding more than German bonds, but that's likely more a currency play than a risk story.

There are many issues with owning individual bonds, including diversification, liquidity and limited ability to do serious analysis. I'd stick to bond funds or CDs.

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Re: Israel bonds [how to evaluate political risk?]

Post by Gill » Sun Jan 11, 2015 4:05 pm

Aren't State of Israel bonds usually purchased by Americans for reasons other than investment purposes? I once worked in a small town where there was an annual State of Israel Bond dinner in which those attending would stand up and announce how many they were buying. The bank I was with usually purchased some of the bonds for its own account. I also encountered many of these bonds in estates and trust I administered, often rather small holdings.
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Re: Israel bonds [how to evaluate political risk?]

Post by LadyGeek » Sun Jan 11, 2015 4:54 pm

Perhaps, but let's keep the focus factual.
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Re: Israel bonds [how to evaluate political risk?]

Post by richard » Sun Jan 11, 2015 5:01 pm

If large numbers are purchasing bonds for other than economic reasons and market forces couldn't counteract this, then interest rates would understate risk. Yet another reason to avoid individual bonds (other than US treasuries for US persons or similar situations). Also, the no free lunch principle.

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Re: Israel bonds [how to evaluate political risk?]

Post by Valuethinker » Mon Jan 12, 2015 3:35 am

Markets are not good at evaluating the risk of low probability one off events (disasters in particular). So with Israel there is always that risk-- some kind of serious military or political defeat or internal political ruction. The risks to Israel are very much those rather than economic, per se.

Historically Israel had hyperinflation-- one of the most successful cases of bringing it under control. However the USD aspect of the bonds should protect you against an (very unlikely) recurrence. They did have one of the world's foremost economists as governor of their Central Bank, and he was successful in that role.

If you have personal affiliations for Israel and want to support it then that is a good reason to invest in Israeli bonds. If you wanted to market time, wait until the next crisis (they come along every few years).

If you do not, you risk taking on uncompensated risk. You are not in the best position to analyze the credit worthiness of Israel, and even the professionals get it wrong.

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Re: Israel bonds [how to evaluate political risk?]

Post by AlohaJoe » Mon Jan 12, 2015 7:17 am

bsteiner wrote:Israel bonds now pay 2.76% for 5 years or 3.55% for 10 years, in each case in U.S. dollars. I think the minimum needed to get these rates is $25,000.

I don't know how to evaluate the political risk.
2.76% for 5 years sounds pretty low. I can buy an Australian eTIB with maturity in 2020 and a coupon rate of 4%. Since it is an eTIB, it is also inflation-indexed. And Australia has far fewer political risks than Israel.

So for the political risk, it seems like a low-rate.

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Re: Israel bonds [how to evaluate political risk?]

Post by Leesbro63 » Mon Jan 12, 2015 7:26 am

Bsteiner, I send you a private message.

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Re: Israel bonds [how to evaluate political risk?]

Post by richard » Mon Jan 12, 2015 7:58 am

AlohaJoe wrote:
bsteiner wrote:Israel bonds now pay 2.76% for 5 years or 3.55% for 10 years, in each case in U.S. dollars. I think the minimum needed to get these rates is $25,000.

I don't know how to evaluate the political risk.
2.76% for 5 years sounds pretty low. I can buy an Australian eTIB with maturity in 2020 and a coupon rate of 4%. Since it is an eTIB, it is also inflation-indexed. And Australia has far fewer political risks than Israel.

So for the political risk, it seems like a low-rate.
Aren't these bonds issued in Australian dollars rather than USD? If so, there's currency risk for a US investor, so a straight comparison of interest rates doesn't tell the whole story.

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Re: Israel bonds [how to evaluate political risk?]

Post by William Million » Mon Jan 12, 2015 8:07 am

2.76 is a bit low for single country in a dangerous neighborhood. You can get an FDIC insured CD for 2.25 or slightly more.

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Re: Israel bonds [how to evaluate political risk?]

Post by Grt2bOutdoors » Mon Jan 12, 2015 8:30 am

Those bonds have historically paid a low rate, I recall them paying 4% when market rates at banks (no less) in CD's were yielding 5.5% or more. That said, Israel has faced many risks over the last 30 years or more, they are still here. I don't expect this to change anytime soon. I hold zero of these instruments.
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Re: Israel bonds [how to evaluate political risk?]

Post by CrossOverGuy » Mon Jan 12, 2015 12:03 pm

One point to keep in mind regarding Israeli bonds: how difficult it might be to redeem them. I was executor on a will and had to hire attorneys in Israel as well as my attorney in the U.S. because of all the paperwork needed to cash in these bonds. It got very expensive and took a long time. Maybe this might not be a problem if cashed in while the original purchaser is still alive.

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Re: Israel bonds [how to evaluate political risk?]

Post by Gill » Mon Jan 12, 2015 12:05 pm

CrossOverGuy wrote:One point to keep in mind regarding Israeli bonds: how difficult it might be to redeem them. I was executor on a will and had to hire attorneys in Israel as well as my attorney in the U.S. because of all the paperwork needed to cash in these bonds. It got very expensive and took a long time. Maybe this might not be a problem if cashed in while the original purchaser is still alive.
The OP is a trusts and estates attorney.
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Re: Israel bonds [how to evaluate political risk?]

Post by Valuethinker » Mon Jan 12, 2015 5:16 pm

bsteiner wrote:Israel bonds now pay 2.76% for 5 years or 3.55% for 10 years, in each case in U.S. dollars. I think the minimum needed to get these rates is $25,000.

I don't know how to evaluate the political risk.
The short answer is none of us can, not even the market. The market can only take a guess at how it will play out.

Based on past experience, Israel will survive, but its longterm security issues won't be resolved either as well as its simmering economic problems. And Israeli politics will remain the cesspit that it is. The people like (insert your own favourite, mine is the woman ex Mossad agent) who the *rest* of us think would make the natural leaders, don't wind up as the natural leaders (not to worry, the same is true of the USA, UK etc.). The divisive demographic forces will continue.

There's always some small chance of a total crisis. Let's be optimistic and say there is also some small (better?) chance of a lasting settlement. In that latter scenario, you don't want to own the bonds. Not even sure you want to own the stocks (although they would soar). You want to own *real estate* because if there's a durable peace, Israel will become the Singapore, the Hong Kong, of the Middle East. Tel Aviv will look like the Upper West Side. Housing prices will look like San Jose.

So for my money, a small chance of it hitting the wall (in an economic sense), painful debt restructuring etc. and then if really good things happen, you just get your money back.

Doesn't feel like it's a big enough yield for that limited upside. Buy the stock market ETF instead?

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Re: Israel bonds [how to evaluate political risk?]

Post by Valuethinker » Mon Jan 12, 2015 5:17 pm

Grt2bOutdoors wrote:Those bonds have historically paid a low rate, I recall them paying 4% when market rates at banks (no less) in CD's were yielding 5.5% or more. That said, Israel has faced many risks over the last 30 years or more, they are still here. I don't expect this to change anytime soon. I hold zero of these instruments.
+1 on all points.

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Re: Israel bonds [how to evaluate political risk?]

Post by bhsince87 » Tue Jan 13, 2015 2:27 pm

If you really want to gamble, there are some other options out there. Are they any more or less risky than Israel? I don't think that can be answered.

http://www.bloomberg.com/news/2015-01-1 ... ields.html
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Re: Israel bonds [how to evaluate political risk?]

Post by Buffetologist » Tue Jan 13, 2015 4:20 pm

The way I remember from the textbooks, a risky bond is priced as the value of a safe bond with the same terms minus the value of the option to default.

So if you know the interest rate of the equivalent safe bond, the treasury, you can calculate how low the price of the treasury would have to be to have the same yield as the Israel bond. This difference is the value of the option to default to the State of Israel.

The higher the value of the option to default, the higher the market's assessment of the probability of a default.

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Re: Israel bonds [how to evaluate political risk?]

Post by smectym » Thu Nov 02, 2017 12:58 am

As a minor complement to a much larger U.S. savings bond portfolio I’ve been purchasing Israel bonds for several years. Like savings bonds, Israel bonds offer stability of principal and a guaranteed rate to maturity. The rates are higher; no doubt the higher rates reflect various risk factors. I just bought a 5-year security at 3.42%.

The online purchase process is fairly painless and has recently been further simplified.

Not for everyone but worth looking into.

http://www.israelbonds.com/Offerings-Ra ... gKRp_D_BwE

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Re: Israel bonds [how to evaluate political risk?]

Post by Valuethinker » Thu Nov 02, 2017 7:50 am

smectym wrote:
Thu Nov 02, 2017 12:58 am
As a minor complement to a much larger U.S. savings bond portfolio I’ve been purchasing Israel bonds for several years. Like savings bonds, Israel bonds offer stability of principal and a guaranteed rate to maturity. The rates are higher; no doubt the higher rates reflect various risk factors. I just bought a 5-year security at 3.42%.

The online purchase process is fairly painless and has recently been further simplified.

Not for everyone but worth looking into.

http://www.israelbonds.com/Offerings-Ra ... gKRp_D_BwE
Just a note that this is a restart of a 2015 thread (neither good nor bad, but worth noting).

I would rather own the Israeli stock market (because for the risk, there is the upside) but I can see the attractions of Israeli government bonds, in that the risks have never actually led to a default. Israel did have hyperinflation in the 80s, but USD bonds would not reflect that.

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Re: Israel bonds [how to evaluate political risk?]

Post by smectym » Thu Nov 02, 2017 10:49 pm

True that Israel Bonds are a bond backed by the government of Israel, but they must be distinguished from regular Israeli government bonds for a number of reasons—not least their much higher yield. Note the vast yield disparity between Israel Bonds sold to retail investors in the U.S. and tradeable Israeli government bonds: e.g. a 5 year Israel Bond currently yields 3.42% whereas its tradeable counterpart, the Israeli 5 year note, yields well under 1%. The same gulf persists across the yield curve. The disconnect is intriguing and contradicts the stereotypical conception of Israel Bonds as a financially non-competitive product.

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Re: Israel bonds [how to evaluate political risk?]

Post by Leesbro63 » Fri Nov 03, 2017 12:43 am

Years ago, Israel Bonds were given to baby boomers as gifts. Usually they were 15 year bonds paying 4% in a world that became a 10-15% world as the inflationary 1970s took hold. So many came to view State of Israel bonds as terrible investments and more or less a partial donation to the relatively new country. But that all changed about 20 years ago and their bonds have been great fixed income investments. Lower holding periods and above U.S. treasury or CD rates. Yet the perception among many baby boomers remains the 4% bond locked up forever in a 10% world

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Re: Israel bonds [how to evaluate political risk?]

Post by Valuethinker » Fri Nov 03, 2017 3:34 am

smectym wrote:
Thu Nov 02, 2017 10:49 pm
True that Israel Bonds are a bond backed by the government of Israel, but they must be distinguished from regular Israeli government bonds for a number of reasons—not least their much higher yield. Note the vast yield disparity between Israel Bonds sold to retail investors in the U.S. and tradeable Israeli government bonds: e.g. a 5 year Israel Bond currently yields 3.42% whereas its tradeable counterpart, the Israeli 5 year note, yields well under 1%. The same gulf persists across the yield curve. The disconnect is intriguing and contradicts the stereotypical conception of Israel Bonds as a financially non-competitive product.
Intriguing. [sorry I haven't had time to google these questions]

Is there a restriction on ownership? Individuals only? Tax rules set up for Americans?

When do they expire? (mature)

If you took the number of Israelis in leading business schools in US & rest of world, that alone, one would think, would add up to enough buyers (family and friends) to drive the price (yield) back to equilibrium ;-).

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Re: Israel bonds [how to evaluate political risk?]

Post by Leesbro63 » Fri Nov 03, 2017 7:22 am

Valuethinker wrote:
Fri Nov 03, 2017 3:34 am
smectym wrote:
Thu Nov 02, 2017 10:49 pm
True that Israel Bonds are a bond backed by the government of Israel, but they must be distinguished from regular Israeli government bonds for a number of reasons—not least their much higher yield. Note the vast yield disparity between Israel Bonds sold to retail investors in the U.S. and tradeable Israeli government bonds: e.g. a 5 year Israel Bond currently yields 3.42% whereas its tradeable counterpart, the Israeli 5 year note, yields well under 1%. The same gulf persists across the yield curve. The disconnect is intriguing and contradicts the stereotypical conception of Israel Bonds as a financially non-competitive product.
Intriguing. [sorry I haven't had time to google these questions]

Is there a restriction on ownership? Individuals only? Tax rules set up for Americans?

When do they expire? (mature)

If you took the number of Israelis in leading business schools in US & rest of world, that alone, one would think, would add up to enough buyers (family and friends) to drive the price (yield) back to equilibrium ;-).
The Israel Bonds referred to here are sold like and are like U.S. bank certificates of deposit (without the ability to withdraw money early by paying a penalty). The Government of Israel can now borrow cheaper and more efficiently thru the world bond markets than thru their little offices (like banks) in major U.S. cities, selling 5 and 10 year bonds to individuals. It wasn't always that way...originally Israel Bonds were a vital money source for the new country. I believe they continue to sell bonds to individuals, as they do, as part of their mission to promote their country.

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Re: Israel bonds [how to evaluate political risk?]

Post by smectym » Fri Nov 03, 2017 11:47 pm

Yes, one can argue that Israel Bonds sold to small investors in the U.S. should accrue a yield premium to compensate for the fact that the bonds are not tradeable prior to maturity, while regular Israeli debt is tradeable. But the premium appears disproportionate, especially because the minus of “non tradeable” is accompanied by its corollary plus, “stability of principal.”

I really haven’t figured it out. Both Israel Bonds and tradeable Israeli debt carry the same A+ rating, but the yield on the supposedly “dumb money” product sold to people who buy primarily for reasons extrinsic to investment logic appears quite competitive viewed strictly from an investment standpoint.

However, the same counter-intuitive relationship can exist between U.S. savings bonds and the broader U.S. treasury market. We’ve been buying both I and EE bonds for nearly 20 years. The current yield on our (tax deferred and state tax free) savings bond portfolio certainly exceeds the current 30-year T-bond rate.

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Re: Israel bonds [how to evaluate political risk?]

Post by SrGrumpy » Sat Nov 04, 2017 12:39 am

Leesbro63 wrote:
Fri Nov 03, 2017 7:22 am
The Government of Israel can now borrow cheaper and more efficiently thru the world bond markets than thru their little offices (like banks) in major U.S. cities, selling 5 and 10 year bonds to individuals. It wasn't always that way...originally Israel Bonds were a vital money source for the new country. I believe they continue to sell bonds to individuals, as they do, as part of their mission to promote their country.
Do any other countries have little offices in U.S. cities selling bonds to individuals? Maybe there are some interesting products out there for the "fun money" part of the portfolio?

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Re: Israel bonds [how to evaluate political risk?]

Post by 3funder » Sat Nov 04, 2017 5:30 am

I would not invest in them. Is a small allocation going to hurt? Probably not, but we're talking about the Middle East. Political and military risks mean everything.

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Re: Israel bonds [how to evaluate political risk?]

Post by nisiprius » Sat Nov 04, 2017 7:01 am

Why would one try to do any better than the ratings agencies? Too lazy to go to the source--if I were going to invest in them I would, of course--but Wikipedia has a handy List of countries by credit rating. According to their list, Israel's ratings are:

(S&P) A+, positive outlook;
(Fitch) A+, stable outlook;
(Moody's) A1, stable outlook.

Now, the ratings agencies absolutely do consider political risk; (one of the criticisms of sovereign debt ratings is that there is too much subjective opinion in them and not enough balance sheet).

On the face of it, i.e. the ratings, that looks fine. What do we know that the ratings agencies don't know?

Of course the ratings are not black boxes and the ratings agencies issue reports. Anyone know how much it costs to become enough of a member to read them? For that matter, what happens if you ask the person who is selling them to you, "by the way, do you have a copy of the Moody's report on Israel?"

Here's a little nugget from their press release:
Israel's geopolitical challenges include territorial disputes with the Palestinians, civil strife and conflict in Egypt and Syria, the presence of Islamic State on Israel's borders and continued tensions with Iran.

However, in Moody's view, there is little risk that geopolitical events could undermine the government or bring to power an administration that differed in any substantial manner on fiscal or economic policy.
That might be right, it might be wrong, but it is definitely an evaluation of political risk.
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Re: Israel bonds [how to evaluate political risk?]

Post by Valuethinker » Sat Nov 04, 2017 8:26 am

smectym wrote:
Fri Nov 03, 2017 11:47 pm
Yes, one can argue that Israel Bonds sold to small investors in the U.S. should accrue a yield premium to compensate for the fact that the bonds are not tradeable prior to maturity, while regular Israeli debt is tradeable. But the premium appears disproportionate, especially because the minus of “non tradeable” is accompanied by its corollary plus, “stability of principal.”

I really haven’t figured it out. Both Israel Bonds and tradeable Israeli debt carry the same A+ rating, but the yield on the supposedly “dumb money” product sold to people who buy primarily for reasons extrinsic to investment logic appears quite competitive viewed strictly from an investment standpoint.

However, the same counter-intuitive relationship can exist between U.S. savings bonds and the broader U.S. treasury market. We’ve been buying both I and EE bonds for nearly 20 years. The current yield on our (tax deferred and state tax free) savings bond portfolio certainly exceeds the current 30-year T-bond rate.
On the latter I keep thinking of Bill Murray to the Mayor of New York in Ghostbusters "Lenny, this is your chance to save the lives of millions .... of registered voters".

The US political process would slow down change-- those hurt would scream a lot louder than the (very small) benefits to a far greater number (who aren't even aware they are being hurt by a marginally greater borrowing cost).

In the Israel case it must be that institutional investors can't touch this, and the State of Israel still values its contacts with individual investors.

As long as the Israeli political system and the Israeli taxpayer are prepared to put up with this, why not?

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Re: Israel bonds [how to evaluate political risk?]

Post by Valuethinker » Sat Nov 04, 2017 8:26 am

Leesbro63 wrote:
Fri Nov 03, 2017 7:22 am
Valuethinker wrote:
Fri Nov 03, 2017 3:34 am
smectym wrote:
Thu Nov 02, 2017 10:49 pm
True that Israel Bonds are a bond backed by the government of Israel, but they must be distinguished from regular Israeli government bonds for a number of reasons—not least their much higher yield. Note the vast yield disparity between Israel Bonds sold to retail investors in the U.S. and tradeable Israeli government bonds: e.g. a 5 year Israel Bond currently yields 3.42% whereas its tradeable counterpart, the Israeli 5 year note, yields well under 1%. The same gulf persists across the yield curve. The disconnect is intriguing and contradicts the stereotypical conception of Israel Bonds as a financially non-competitive product.
Intriguing. [sorry I haven't had time to google these questions]

Is there a restriction on ownership? Individuals only? Tax rules set up for Americans?

When do they expire? (mature)

If you took the number of Israelis in leading business schools in US & rest of world, that alone, one would think, would add up to enough buyers (family and friends) to drive the price (yield) back to equilibrium ;-).
The Israel Bonds referred to here are sold like and are like U.S. bank certificates of deposit (without the ability to withdraw money early by paying a penalty). The Government of Israel can now borrow cheaper and more efficiently thru the world bond markets than thru their little offices (like banks) in major U.S. cities, selling 5 and 10 year bonds to individuals. It wasn't always that way...originally Israel Bonds were a vital money source for the new country. I believe they continue to sell bonds to individuals, as they do, as part of their mission to promote their country.
Thank you, that makes a lot of sense.

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Re: Israel bonds [how to evaluate political risk?]

Post by Valuethinker » Sat Nov 04, 2017 8:29 am

3funder wrote:
Sat Nov 04, 2017 5:30 am
I would not invest in them. Is a small allocation going to hurt? Probably not, but we're talking about the Middle East. Political and military risks mean everything.
Markets are bad at pricing "big event risk".

There's Big Event Risk with Israel. Like someone starts tossing nukes around. Some kind of holy war. The market just cannot price that-- it either happens, or it does not, and so the market will ignore the possibility until it becomes a significant one, and then probably overcorrect the other way (or be right, in fact).

Otherwise Israel has proven it will survive any lesser challenge-- 1948, 1956, 1973 (when it was caught by surprise-- technology has changed so much that cannot happen again; given an awareness by intelligence agencies and General Staff's that it has happened before), 1981 (Lebanon), 2 Intifadas etc.

There was also the period of hyperinflation in the 1970s and 1980s. But this is a USD security. So unless the State of Israel defaults, that's not so much of a worry.

I'd still rather own the stock market there BUT this is definitely a fixed income anomaly that small US investors can exploit.

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Re: Israel bonds [how to evaluate political risk?]

Post by Valuethinker » Sat Nov 04, 2017 8:33 am

nisiprius wrote:
Sat Nov 04, 2017 7:01 am
Why would one try to do any better than the ratings agencies? Too lazy to go to the source--if I were going to invest in them I would, of course--but Wikipedia has a handy List of countries by credit rating. According to their list, Israel's ratings are:

(S&P) A+, positive outlook;
(Fitch) A+, stable outlook;
(Moody's) A1, stable outlook.

Now, the ratings agencies absolutely do consider political risk; (one of the criticisms of sovereign debt ratings is that there is too much subjective opinion in them and not enough balance sheet).

On the face of it, i.e. the ratings, that looks fine. What do we know that the ratings agencies don't know?

Of course the ratings are not black boxes and the ratings agencies issue reports. Anyone know how much it costs to become enough of a member to read them? For that matter, what happens if you ask the person who is selling them to you, "by the way, do you have a copy of the Moody's report on Israel?"

Here's a little nugget from their press release:
Israel's geopolitical challenges include territorial disputes with the Palestinians, civil strife and conflict in Egypt and Syria, the presence of Islamic State on Israel's borders and continued tensions with Iran.

However, in Moody's view, there is little risk that geopolitical events could undermine the government or bring to power an administration that differed in any substantial manner on fiscal or economic policy.
That might be right, it might be wrong, but it is definitely an evaluation of political risk.
All good stuff.

For the really apocalyptic stuff, whether it is Marie Le Pen as President of France, or nuclear bombs flying around the Middle East, the market really can't price it.

It worries about it, and maybe there is a permanent discount on Israeli stocks and bonds (i.e. yield premium) because of it, but fundamentally there is not much in it in the valuation. Conventional economic and corporate factors are more important.

It's like a US debt default (for non parliamentary reasons). Yes a Credit Default Swap on US government debt costs *something*. But that doesn't mean the market is pricing in, in any sense, the probability of a US default (say when Prophet Nehemiah Scudder comes to power (Robert A Heinlein reference ;-)).

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Re: Israel bonds [how to evaluate political risk?]

Post by Leesbro63 » Sat Nov 04, 2017 8:48 am

My PERSONAL analysis is that FOR ME, Israel Bonds as a small portion of my taxable fixed income allocation, make sense. Middle East risk is just one more risk to accept as a SMALL part of a vastly diversified portfolio of risky (some more, some less) assets. I feel that I’m getting paid appropriately for that risk.

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Re: Israel bonds [how to evaluate political risk?]

Post by bestplans » Sat Nov 04, 2017 9:12 am

Are these compounded daily, annually, etc.? Assuming I would consider these as safe as CDs, how do I compare their stated yields on an apples-apples basis?

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Re: Israel bonds [how to evaluate political risk?]

Post by Leesbro63 » Sat Nov 04, 2017 9:26 am

bestplans wrote:
Sat Nov 04, 2017 9:12 am
Are these compounded daily, annually, etc.? Assuming I would consider these as safe as CDs, how do I compare their stated yields on an apples-apples basis?
Definitely NOT as safe as FDIC CDs. Not sure about how they are compounded (but I guess I should be). I believe you can Google "State of Israel Bonds" for more info.

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Re: Israel bonds [how to evaluate political risk?]

Post by bestplans » Sat Nov 04, 2017 10:07 am

From the Israel Bond prospectus:

How do I compare the method of compounding to that of a direct bank CD? Are the stated yields comparable?

Interest and Maturity Payments. Interest will accrue from (and including) the Issue Date of the bonds until (but not
including) the maturity date. We will pay interest semi-annually on May 1, November 1 (each, an “Interest Payment Date”)
and upon maturity, except that for bonds issued on April 15 and October 15 of each year, the first interest payment will be
on the subsequent Interest Payment Date following their Issue Date. If either Interest Payment Date is not a Business
Day, we will pay interest that has accrued until (but not including) either May 1 or November 1, as the case may be, on the
next Business Day, but interest that accrues from either May 1 or November 1, as the case may be, until (but not
including) the date on which the interest is paid, will be paid on the next Interest Payment Date. We will calculate interest
for each of the above periods as a percentage of the annual percentage rate based on a 365-day year and the actual
number of days elapsed. When the bonds mature, you will receive the face amount of the bonds in United States
currency.

smectym
Posts: 845
Joined: Thu May 26, 2011 5:07 pm

Re: Israel bonds [how to evaluate political risk?]

Post by smectym » Sun Nov 05, 2017 12:55 am

Agree with Leesbro63, do not confuse Israel Bonds with an FDIC insured product. No such insurance exists or is implied.

No question that the government of Israel highly values the ability to access this source of funds from U.S. retail investors and I think it’s fair to say that were a default to occur impacting the U.S. retail investor base, that would be associated with a catastrophic situation for Israel. So in normal course investors should expect prompt payment of interest and prompt return of principal at bond maturity. That has been my experience. But should worse come to worst, there is no insurance or other recourse should Israel become unable to service this debt.

Valuethinker
Posts: 40458
Joined: Fri May 11, 2007 11:07 am

Re: Israel bonds [how to evaluate political risk?]

Post by Valuethinker » Sun Nov 05, 2017 7:39 am

smectym wrote:
Sun Nov 05, 2017 12:55 am
Agree with Leesbro63, do not confuse Israel Bonds with an FDIC insured product. No such insurance exists or is implied.

No question that the government of Israel highly values the ability to access this source of funds from U.S. retail investors and I think it’s fair to say that were a default to occur impacting the U.S. retail investor base, that would be associated with a catastrophic situation for Israel. So in normal course investors should expect prompt payment of interest and prompt return of principal at bond maturity. That has been my experience. But should worse come to worst, there is no insurance or other recourse should Israel become unable to service this debt.
Here's what happened when we went to war-- by We I mean the United Kingdom in WW2, Canada and perhaps the USA (I think so, but have not checked).

The holders of government bonds were invited to, as a matter of patriotism, roll them over into new government debt. Interest was paid (there were restrictions, and marginal tax rates were as high as 90%) or deferred until after the end of the war (not sure which tbh). I think it was actually the latter (no interest payments on the new debt until post war). Had we lost and Britain fallen under German occupation, you would have lost your money.

That, I think, is what would happen in the event of a major war by Israel, or an extended crisis. They would not default, but they would roll the debt-- and I am not sure you'd get a choice on that.

It's an attractive asset, there's no doubt about it, if you look at what Israeli bonds (normal) are trading on the market.

However you won't get your money back, and they may not even pay interest, if there is a major military-political crisis.

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