Cancellation of non-tradeable bonds likely to be positive for the long-end of the curve

ISRAEL - In Brief 24 Oct 2021 by Jonathan Katz

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Non-tradeable bond issuance is likely to be cancelled in mid-2022.This will require higher tradeable bond issuance (an additional 35bn annual) in order to meet fiscal financing requirements. Demand for this increase in issuance could be less than 35bn as pension funds diversify their assets, in part to equity and corporate bonds.Higher bond issuance will increase liquidity and depth to the bond market.Pension funds will likely prefer the long end of the sovereign curve in order to maintain their long duration (non-tradeable bonds are issuance for 15 years). They will also diversify more into equities and corporate bonds.The MoF is likely to save 4-5bn on interest payments annually, once non-tradeable bonds disappear. Labor trends reflect slow job growthEmployment growth has basically stalled since the second half of July, as unemployment reached 7.9% in the second half of September.Job vacancies in September continue to drift higher to 137k from 134k. We note that due to the holiday season for most of September, many unemployed postponed returning to the job market.Labor data in coming months will be important to assess wage pressures.Strong growth in manufacturing: The PMI increased by 4.0 points in September to 58.1, the highest level since 2018.Monetary policy: One MPC member voted to hike rates in the last rate decision (out of six). He noted that: “economic data make that possible, in view of the strong National Accounts data, the increase in the inflation environment and expectations for all terms being anchored in the target range, and the increase in financial risks”. We are fairly sure this was Professor Grunau, the most hawkish member on the committee, who wi...