Government bond issuance slows amid narrowing deficit and surplus funds

ISRAEL - In Brief 05 May 2025 by Sani Ziv

---

Israel’s Ministry of Finance announced plans to raise NIS 11.0 billion in tradable local bonds during May 2025, a moderate increase from NIS 9.81 billion in April but still well below the average monthly issuance of nearly NIS 16 billion recorded throughout 2024 and early 2025. The decline in issuance reflects an improved fiscal outlook, with the deficit narrowing to approximately 5% of GDP, down from a peak of 8% in 2024. In addition, the government holds around NIS 30 billion in excess funding from 2024, which will help finance this year’s shortfall. Impact on yields and investor sentiment In April, long-term shekel-denominated government bonds were issued at a yield of 4.3%, and since the beginning of 2025, issuance has averaged around 4.43%. These relatively low yields reflect ample liquidity in the local market and strong demand from institutional investors for shekel-denominated assets. Yields on dollar-denominated bonds issued to foreign investors remain elevated at around 6%, reflecting both Israel’s sovereign risk premium and the currency risk associated with exchange rate fluctuations—factors also evident in the country’s high CDS spreads. As outlined, government borrowing is expected to further decline in the second half of 2025.However, the renewed fighting in Gaza and the broad mobilization of army reservists could drive the fiscal deficit higher in the coming months, potentially requiring an upward adjustment in bond issuance later this year. Government debt issuance (NIS billion) and government budget deficit (% of GDP)