Foreign debt issues will take some pressure off domestic yields

ISRAEL - In Brief 05 Apr 2020 by Jonathan Katz

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The Employment Agency continues to report an increase in the demand for unemployment benefits, reaching 880 thousand (including forced unpaid vacation). This represents 25% of the labour force. The MoF announce a modest fiscal stimulus package of 80bn (5.5% GDP). Only about 2.5% (35bn ILS) are expected to impact fiscal expenditure. The rest are loan guarantees or vague future spending intentions. Last week, the MoF issued abroad 5bn USD, 10, 30 and 100 year. In addition, 0.7bn Euro was raised in a private placement issue. We estimate that domestic bond issues will average 9bn ILS per month in May-December (up from 5bn in April). Our estimate takes into account an 8% fiscal deficit, foreign financing and some usage of excess bond issues from previous years. Monetary policy: We expect a policy rate cut today from 0.25% to 0.1%. Although this appears as a fairly clear-cut decision in light of the deep recession, market expectations are split, with about half of forecasters expecting rate stability. They make the case that if the BoI wanted to reduce rates it would have done so before the official rate decision. We cannot rule out further announcements from the Bank of Israel regarding a corporate bond purchasing scheme, following the government bond purchasing scheme announced two weeks ago. The BoI is slowly following in the footsteps of the Fed and the ECB. Politics: Negotiations continue between Netanyahu and Gantz in order to form a unity government. Despite some progress, a few disagreements still remain. A government is likely to be formed this week. Corona: There are some 8 thousand sick people with the coronavirus, 130 in serious condition and 50 people have died....