The shekel appreciates sharply on Israel's joining the WGBI

ISRAEL - Report 02 Oct 2019 by Jonathan Katz

Last Friday witnessed a sharp shekel appreciation of 1% (against both the dollar and the Euro), which continued after the official exchange rate was announced at 13:30. The dramatic shekel strengthening followed the announcement by Russell FTSE of Israel's joining the World Global Bond Index in April 2020, receiving a weight of 0.29% (at the high end of expectations), which is expected to create significant additional demand for Israeli government bonds, estimated at 4-5bn USD. Israel will be the 23rd country to join this index. In addition, Israel is joining the WORLDILSI, an index that tracks Global CPI-linked bonds (receiving a weight of 1.78% this index). At present (as of July), foreign investors hold only 5% of total Israeli tradeable government bonds, declining from 7% earlier this year. With 40% of all bonds in the WGBI trading at negative rates, Israeli government bonds appear relatively attractive. Despite the sharp shekel appreciation on Friday, the Bank of Israel apparently did not intervene in the FX market, as in the past during sharp shekel "speculative" fluctuations. This could be a signal to the markets that the new Governor, Professor Yaron, is less keen on intervening than his predecessors. If so, pressure for shekel appreciation is likely to continue.

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