State of Israel Bonds
Israel Bonds is also the more familiar name of the underwriter of the bonds in the United States. The company is officially known as Development Corporation for Israel (DCI). DCI is headquartered in New York City, and is a broker-dealer registered by the Financial Industry Regulatory Authority (FINRA).
On October 31, 2011, Israel "Izzy" Tapoohi assumed responsibility as president and CEO of Development Corporation for Israel/Israel Bonds. Highly regarded for his private sector expertise and insights, Tapoohi has served as a top executive for Israel’s most prominent companies, including chairman of the board of Africa-Israel Investments and executive chairman of the board of Bezeq, Israel’s telecommunications provider and largest corporation.
The sale of Israel bonds is global in scope. In addition to the United States, bonds are sold in Canada through Canada-Israel Securities, Ltd., and Latin America and Europe through Israel Bonds International. Sales have increased steadily since the initial Independence Issue, with total worldwide sales exceeding $37 billion. In 2013, U.S. Israel bond sales surpassed $1.12 billion, the first time domestic sales exceeded the $1 billion mark.
In the fall of 2011, Israel Bonds launched an eCommerce site to facilitate investing in Israel bonds online. Investments made via the online site are more than $65 million.
1950 to 1951
The idea to float bonds issued by Israel's government was conceived by Israel's first prime minister, David Ben-Gurion, in the aftermath of Israel's War of Independence. The war had taken a terrible toll in casualties (more than 1% of the country's population was killed), and the nation's fledgling economy was devastated.
Compounding the dire situation was the fact that Israel faced economic demands unique to the new state, most especially the arrival of hundreds of thousands of immigrants. In Israel's early years, immigrants generally fell into two categories: Holocaust survivors and Jewish refugees from Arab countries.
For Holocaust survivors, the journey to Mandate Palestine prior to Israel's independence had been extremely perilous. The British patrolled the coastline, maintained a blockade to prevent entry, stopped many ships, and sent the passengers to displaced persons camps in Europe. On May 15, 1948, the end of the British Mandate and the establishment of Israel removed all impediments to immigration. As a result, a large portion of the surviving remnant of European Jewry quickly set sail for Israel.
Meanwhile, Jews from throughout the Middle East, who fled, were expelled, or were rescued through missions such as Operation Magic Carpet, added to the enormous influx of immigrants. Short on money, the country suffered food shortages and rationing, and the new arrivals had to be housed in primitive conditions.
With his country financially overwhelmed, Ben-Gurion turned to the Diaspora community for help. In September 1950, he convened a meeting of American Jewish leaders at Jerusalem's King David Hotel, where he proposed issuing bonds to help provide Israel with a more secure economic foundation. Ben-Gurion's goals were two-fold: to obtain millions of dollars in funding for immigrant absorption and the construction of national infrastructure, and to engage Diaspora Jewry as active partners in building the new Jewish state.
The American Jewish leaders supported Ben-Gurion's plan and, the following spring, the prime minister traveled to New York to help launch the inaugural Independence Issue at a gala Madison Square Garden ceremony. Expectations for first-year sales were $25 million. Instead, final results for 1951 more than doubled projections, exceeding $52 million.
1952 to 1966
The new organization increasingly expanded operations throughout the US and Canada, providing proceeds utilized to help fund projects in Israel's industrial and agricultural sectors, including the Dead Sea Works and National Water Carrier.
Within six years, according to an article in the January 21, 1957, issue of Time magazine, "bond sales alone amount(ed) to an astonishing 35% of Israel's special development budget." The article quoted Foreign Minister Golda Meir, who emphatically stated, "the central role in building our economic strength has been played by Israel bonds."
1967 to 1992
Over subsequent decades, sales continued to increase, particularly in times of crisis. During 1967's Six-Day War, sales exceeded $250 million a mark that more than doubled during the Yom Kippur War of 1973. From the mid-1980s to 1992, the bonds were the primary way that the Israeli government obtained external funding. In 1991, the year of the Persian Gulf War and Iraqi missile strikes on Israel, annual sales broke the $1 billion threshold.
1993 to 2012
Annual worldwide sales remained at $1 billion or above as Israel bonds became increasingly viewed not only as a means of supporting Israel, but as a useful financial investment as well, particularly for pension funds.
In 2004, the Bank of Israel authorized a report “to describe the activity of the Israel Bonds organization over the past fifty years and to summarize changes that have taken place in the products the organization offers with respect to quantities, types of bonds and recruitment costs.” In doing so, the report noted, “an analysis of the sale of bonds indicates an increase in sales from one decade to the next.” It also observed that the Bonds organization has been market-responsive over the years, “so that each bond addressed a different target audience: individuals, communities (and) financial bodies.” The report concluded that Israel Bonds is “a uniquely Israeli establishment, and no other countries have a similar organization.” It stated that “(when) Israel has found it difficult to raise high sums of external debt, Israel Bonds has shown itself to be capable of reacting quickly to increased needs for foreign currency.”
In May 2008, the Israel Bonds organization was honored in Israel as part of a series of official events celebrating the nation’s 60th anniversary. Held at the Knesset and hosted by Speaker Dalia Itzik, with the participation of Prime Minister Ehud Olmert and Finance Minister Roni Bar-On, the tribute saluted the singular role the Bonds organization played in building, developing and strengthening Israel’s economy.
On September 16, 2009, Israeli Finance Minister Yuval Steinitz paid a visit to Israel Bonds headquarters to express personal appreciation for the organization's efforts.
Initially, Israel Bonds offered one security. As the program became increasingly successful, multiple investment options were made available. The following bonds are currently offered:
- Jubilee Issue Bonds – fixed rate 2, 3, 5 and 10-year bonds; $25,000 minimum investment and increments of $5,000. Interest is paid semi-annually on May 1 and November 1.
- Maccabee Issue Bonds – fixed rate 2, 3 and 5-year bonds; $5,000 minimum investment and increments of $500 . Interest is paid semi-annually on May 1 and November 1.
- Sabra Savings Bonds – fixed rate 3-year bonds; $1,000 minimum investment and increments of $100. Interest paid upon maturity.
- Mazel Tov Bonds – fixed rate 5-year bonds; $100 minimum investment and increments of $10, limited to $2500 per day for each purchaser and holder. Interest paid upon maturity.
- eMitzvah Bonds – fixed rate 5-year bonds; $36 minimum investment and increments of $18. Maximum allowable amount purchased by one person in a transaction, registered in the name of one holder, is $90. Interest paid upon maturity. May only be purchased online.
- Floating Rate LIBOR Bonds – variable rate 2, 3 and 5-year bonds; $5,000 minimum investment and increments of $500; interest paid semi-annually on June 1 and December 1.
Rates change two times per month on most Israel bonds. Interest for fixed rate bonds is based on prevailing Treasury bond rates, plus a spread. Rates for floating rate bonds are equal to the 6-month LIBOR rate in effect on the initial determination date, plus or minus a spread that remains fixed until maturity.
According to Israel's Finance Ministry,"Israel has never defaulted in the payment of principal or interest on any of its internal or external indebtedness."  According to the Congressional Research Service of the Library of Congress, as of 2002, approximately $40 billion in loans to Israel by the United States Government have been waived by the United States Government, rather than repaid by Israel.
Capital is raised through the following four organizations: Development Corporation for Israel (US), Israel Bonds International (Europe and Latin America), Development Company for Israel (UK) Ltd., and Canada-Israel Securities Limited.
Computershare acts as fiscal agent for the bonds. Historically the bonds have not generally been freely transferable. The country expects to continue issuing new bonds indefinitely. Redemption of Israel bonds requires a new W-9 form to be submitted with the bond, and redemption checks often take over a month to be issued.
Investment grade ratings
The following international agencies have assigned Israel investment-grade ratings (although Israel bonds themselves are not rated):
- On October 17, 2012 Standard & Poor's affirmed Israel's A/A-1 sovereign credit rating, with an outlook of 'stable.'
- In a credit opinion issued August 15, 2013, Moody's Investors Service reconfirmed Israel's government foreign and local currency bond ratings at A1, as well as its 'stable' outlook on Israel's sovereign rating. Moody's has praised Israel Bonds as a source of funding ‘at favorable costs,’ highlighting the dependability of the Bonds organization ‘especially during times of domestic or regional conflict.’
- On November 29, 2013, Fitch Ratings affirmed Israel’s credit rating at ‘A,’ and raised its outlook to ‘positive.’
Initial investors in Israel bonds were largely members of the Jewish community who wanted to help Israel strengthen its economic foundations. However, as securities became more diverse and market-responsive, the investor base became increasingly widespread. Israel bonds were seen as a two-fold investment that not only helped Israel, but were a useful means of portfolio diversification.
Investors now include more than 1,700 labor unions, over 1,800 foundations, and numerous states, municipalities, corporations, insurance companies, associations, union pension funds, banks, financial institutions, universities, synagogues, and private investors. Over 70 state and municipal public employee pension and treasury funds have invested more than $1 billion in the bonds.
Over 80 state and municipal governments have invested more than $2 billion in Israel bonds to date. States include California, Connecticut, Florida, Georgia, Illinois, Indiana, Louisiana, Massachusetts, Maryland, Michigan, Minnesota, Missouri, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas, and Wisconsin.
On March 1, 2013, Ohio Treasurer Josh Mandel completed the single largest Israel bond investment by a state, a $42 million purchase that increased the total amount of Israel bonds in the Ohio Treasury’s portfolio to over $80 million.
Capital from the sale of the bonds are designated by Israel's Finance Ministry for economic development projects, many of which were essential to solidifying Israel's post-independence economy. They included:
- The National Water Carrier, which irrigated nearly half a million acres (4,000 km²), allowing Israel to become agriculturally self-sufficient
- The Dead Sea Works, which extracted potash and bromine and became Israel's first major industrial complex
- Port development and expansion in Ashdod, Haifa, and Eilat, opening up export gateways to Europe, Asia, and Africa
- The Hadera power plant, which helped alleviate Israel's lack of energy resources
More recently, capital raised through the sale of the bonds has been used for undertakings such as:
- The building of homes and creation of jobs for hundreds of thousands of Jews who made aliyah from the former Soviet Union and Ethiopia during the massive wave of immigration throughout the 1990s
- Ben-Gurion International Airport expansion
- Extending Israel's rail network
- Improving the national highway system
- Enabling national infrastructure
- Desalination plants
Israel bonds will also help fund development of the Negev desert, Israel's largest remaining open area, comprising approximately half the country's land mass.
- "IsraelUKbonds – About Us". Development Company for Israel (UK) Ltd. Retrieved May 23, 2014.
- "Organizations: Dollars for Israel". Time. January 21, 1957.
- "Annual Report on Form 18-K to the U.S. Securities and Exchange Commission". State of Israel. July 1, 2002. Retrieved May 23, 2014.
- Rehavi, Yehiel; Weingarten, Asher (September 6, 2004). "Fifty Years of External Finance via State of Israel Non-Negotiable Bonds". Bank of Israel. Archived from the original on February 2, 2007. Retrieved May 23, 2014.
- "Israel Bonds: Current Rates". Development Corporation for Israel. Retrieved May 23, 2014.
- "Ministry of Finance - Prospectus". Financeisrael.mof.gov.il. Retrieved May 23, 2014.
- Mark, Clyde R. (2002). "Israel: U.S. Foreign Assistance". Library of Congress Congressional Research Service.
- Terms and Conditions[dead link]
- "Moody's places Israel's ratings on review for possible upgrade". State of Israel Bonds Canada. March 2008. Archived from the original on September 8, 2011. Retrieved May 23, 2014.
- "Who We Are". State of Israel Bonds Canada. Archived from the original on September 8, 2011. Retrieved May 23, 2014.
- "Ohio Makes Historic Israel Bond Investment". Development Corporation for Israel. Archived from the original on May 3, 2013. Retrieved May 23, 2014.