State of Israel Bonds

State of Israel Bonds

State of Israel Bonds are debt securities issued by the Government of Israel.

State of Israel Bonds is also the more familiar name of the underwriter of the bonds in the United States. The company is officially known as the Development Corporation for Israel (DCI). DCI is headquartered in New York City, and is a FINRA-registered broker-dealer. Joshua Matza, a former deputy mayor of Jerusalem, 18-year member of Israel's parliament (the Knesset), and minister of health in the government of Benjamin Netanyahu, has served as DCI's President and CEO since 2002. DCI is also a member of the Securities Investor Protection Corporation (SIPC).

The sale of the bonds has become a global enterprise. In addition to the United States, bonds are sold in Canada, Latin America, and Europe. Sales of the bonds have increased steadily since the initial Independence Issue, with total sales now exceeding $26 billion. [ Who we are] State of Israel Bonds Canada]

Brief History

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 the 1948 Arab-Israeli War. 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 15 May 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. Israel's chronic lack of funds forced the government to settle the wave of immigrants in primitive shelters. Food was scarce and strictly rationed.

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 Israeli prime minister traveled to New York to help launch the inaugural Independence Issue during a gala ceremony at Madison Square Garden. Expectations for first-year sales were $25 million. Instead, final results for 1951 more than doubled projections, exceeding $52 million.

1952 to 1966

Within six years, according to an article in the 21 January 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 steadily increased, particularly during times of crisis. During 1967's Six-Day War, sales exceeded $250 million. That mark more than doubled during the Yom Kippur War of 1973. From the mid-1980s to 1992, the bonds were the major source of external net borrowings by the Government of Israel. In 1991, the year of the Persian Gulf War and Iraqi missile strikes on Israel, annual sales broke the $1 billion threshold.

1993 to 2008

Annual sales continued to stay 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.

Worldwide sales in 2007 totaled $1.94 billion, exceeding the organizational goal of $1 billion. Israel's Finance Ministry has asked the Bonds organization to secure an additional $1 billion in 2008.

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.


Initially, Israel offered one security. As the program became increasingly successful, multiple investment options were made available. Currently, four types of bonds are offered: [ [ Current Investment Rates] State of Israel Bonds]

*Jubilee Issue Bonds – fixed rate 3- and 5-year bonds, each requiring a $25,000 minimum investment, and multiples of $5,000
*Savings Bonds – fixed rate 3-year bonds, available for a $2,500 minimum investment, and multiples of $2,500
*Mazel Tov Bonds – fixed rate $100 minimum 5-year bonds and multiples of $50, limited to $2500 per day for each purchaser and holder.
*Floating Rate LIBOR (London Inter-Bank Offer Rate) Bonds – 3- and 5-year bonds requiring a $5,000 minimum investment and with available $2,500 multiples. The Bonds organization also offers a 2-year $100,000 minimum Floating Rate LIBOR Bond, with $25,000 multiples. The bond can be purchased only if financed through an authorized institutional lender. Rates for the bonds are established four times per month. Interest for fixed rate bonds is based on prevailing Treasury bond rates, plus a spread. LIBOR bonds pay an initial interest rate equal to the 6-month LIBOR rate in effect on the interest determination date, plus or minus a spread that remains fixed until maturity.

Israel has never defaulted on payment of principal, interest, or maturity amount on any of the securities it has issued. 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.

The Bank of New York Mellon acts as fiscal agent for the bonds. [ [ Terms & Conditions] Israel Bonds Direct] Historically the bonds have not generally been freely transferable. Israel expects to continue to issue the bonds in the future.

Investment Grade Ratings

The following international agencies have assigned Israel investment-grade ratings:

*On April 17, 2008 Moody's Investors Service raised Israel's government foreign and local currency bond ratings from A2 to A1 [] . In a report issued a few weeks earlier citing the possibility of an upgrade, Moody’s referred to State of Israel Bonds as a mitigating factor. The report praised Israel Bonds as a source of funding ‘at favorable costs.’ It also highlighted the dependability of the Bonds organization ‘especially during times of domestic or regional conflict.’ []

* On February 11, 2008, Fitch Ratings upgraded Israel's foreign currency Issuer Default Rating to A and local currency Issuer Default Rating to A+. The outlook for both ratings is 'stable.' Israel's short-term foreign currency rating was reaffirmed at F1. The country ceiling was upgraded to AA-.

*On November 27, 2007 Standard & Poor's raised its long-term local currency rating for Israel to AA- and long-term foreign currency rating to A. The short-term local currency rating was raised to A-1+; foreign currency ratings were reaffirmed at A-1. S&P upgraded its outlook from 'Stable' to 'Positive' in February 2007.


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.

Purchasers 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.

This diversity was noted by the Bank of Israel – Israel's equivalent of the Federal Reserve – in a report issued during the 50th anniversary year of the Israel Bonds organization. The Bank of Israel observed: “Israel Bonds is extremely important, not just as a stable source for raising external capital, but also for meeting other important goals (including) diversification of sources.' [ About Us] State of Israel Bonds]

Similarly, in a July 2006 research update, Standard & Poor's said, “State of Israel Bonds... provide(s) significant funding flexibility.”

United States

Half of the states in the US have invested in State of Israel bonds. In 2003, the State of New Jersey pension system purchased $20 million in bonds. In 2005, the Texas Treasury purchased $2 million in the bonds, bringing its total investments to $20 million, [ [ Texas Increases Investment in State of Israel Bonds; Purchases $2 Million in New Bonds and Renews $2 Million in Mature Bonds] Window on State Government, 28 January 2005] and Louisiana purchased $5 million. [ [ Louisiana Purchases $5 Million in State of Israel Bonds] Louisiana Department of the Treasury, 14 October 2004]

In 2007 Florida adopted a bill authorizing county and local governments throughout the State to invest surplus funds in State of Israel bonds. More than $100 million in the bonds are purchased every year within Florida by various individuals, corporations, pension plans, universities, hospitals, foundations, unions, banks and insurance companies. [ [ Crist Encourages Purchase of Israel Bonds] Florida Jewish News, 29 June 2007] The same year, New Mexico announced the purchase of $5 million in State of Israel Bonds, adding to the $10 million that the State had purchased in 2003.

United Kingdom

Development Company for Israel (UK) Ltd, trading as State of Israel Bonds UK, was established in 1981. It is a UK-registered company offering State of Israel bonds, and is regulated by the Financial Services Authority (FSA), which regulates the financial services industry in the UK. UK bond sales increased tenfold in 2000-04, reaching a record $100 million in 2004. [ [ About us] State of Israel Bonds UK]


Proceeds 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; and
*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;
*Strengthening the national infrastructure; and
*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. In addition, plans are underway for industrial parks in the Galilee to further expand Israel's hi-tech sector.


External links

* [ Israel Bonds website]
* [ 2007 Annual Report]
* [ Israel Bonds Canada website]
* [ Israel Bonds/UK website]
* [ 2004 Registration Statement]
* [ 2007 State of Israel 18-K]

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