The increase in domestic issuance is expected to be absorbed without much difficulty

ISRAEL - In Brief 05 May 2020 by Jonathan Katz
We expect bond issuance to average 9bn per month in 2H20In May, tradeable domestic bond issuance will reach 10.5bn ILS, double the pace of the previous months. We think this sharp increase is also due to expectations of a large fiscal deficit this year as well as huge redemptions in May of 11.7bn. Nevertheless, steady BoI bond purchases should prevent higher bond yields. The BoI is committed to purchasing 50bn ILS, 8.5bn was done in March, and probably an additional 6-7bn in April (we will know how much on Thursday).We expect domestic issuance to decline slightly in the second half of the year to a pace of 9bn ILS per month. This assume the following assumptions in our bond issuance forecast:The fiscal deficit will reach 9% GDP or 135bn this year, below the 11% forecast of the Bank of Israel and Ministry of Finance. Our lower forecast is due to the rapid opening up of the economy (more so than expected originally). We also doubt that all of the planned fiscal stimulus will actually be executed.Following several rounds of foreign bond issuance totalling 13bn USD (plus 0.75bn EUR), we assume no further foreign bond issuance.Non-tradeable bond issues will reach 20bn this year.Domestic bond buy-backs will reach 11bn ILS.The MoF will finance 15bn ILS from excess bond issuance from previous years. We think the market will have no problem absorbing bond issuance of 9bn per month in June through December, due to the combination of steady BoI purchases (the BoI can always increase the present program), some foreign demand from WGBI, and Israel's "forced" financial savings (mandatory pension and tax incentives).

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