Bond issuance will likely continue to decline

ISRAEL - In Brief 01 May 2022 by Jonathan Katz

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Positive fiscal numbers have supported lower bond issuance In May, the MoF will issue 3.5bn ILS in tradeable bonds, reduced from 4.5bn in January. This bond reduction is due to surprisingly robust fiscal numbers in Q122, with initial numbers for April pointing to a similar trend. The fiscal deficit is expected to reach 1%-1.2% GDP this year. With strong revenues from land sales, some issuance from abroad and huge excess issuance in 2020-2021, the MoF is in a position to continue to reduce further monthly bond issuance in the last seven months of the year. This will be a supporting factor for the long end of the curve. The labor market is rapidly returning to pre-Covid employment levels. Unemployment reached 3.4% in March from 3.7% in February. Growth indicators remain positive as well, including strong household demand in Q122 (credit card purchases), and strong manufacturing (hi-tech especially) in January-February. Initial data for credit card purchases (through 25.4) suggest growth of 7% m/m (sa). A robust labor market and steady growth will support steady monetary tightening. In Q122, hi-tech companies raised 5.6bn USD abroad, a significant amount but slightly less than the pace in 2021. Initial estimates for April are for approximately 1bn. Inflation expected to surprise on the upside in April-May We revised our forecast for April’s CPI to 0.9% (from 0.8%) on higher fresh produce prices and a weaker shekel. In the beginning of the May, petrol prices increased by 1.7%, above our expectations.We expect inflation in May to reach 0.6% (4.3% y/y). With inflation y/y expected to spike above 4% and approach 4.5% in the coming months and for most of 2022, we see steady mo...