Quora Answer: Are Israeli Bonds a Good Investment?

he following is my answer to a Quora question: “Are Israeli bonds a good investment?”

Unless you feel a particular affection for the country, there are far better options elsewhere.  This entire region is exposed to a lot of political risk.  People buy into bonds like these for their perceived higher returns, to balance out a portfolio.  They are not bonds you by in isolation.

Firstly, we must consider the geopolitical situation that Israel is in.  To put it succinctly, they are in a troubled neighbourhood.  Secondly, the next Israeli government is likely a coalition government, five months after the last coalition government.  They have had a recent bout of instability, and this is expected to continue for a while.  Netanyahu doubled down on the anti-Arab rhetoric, not because I believe he is racist, but he needed to galvanise the right, and shore up his support in the face of corruption allegations.  Regardless, we are looking at a sustained period of political instability.  These two factors alone create concern.

Secondly, much of the Israeli economy is propped up by the US through massive aid.  Considering the state of the US economy, and the real possibility that the next president will be very much to the left, there is a small possibility that aid will be reduced, or at least become conditional.  The current situation is unsustainable.

Thirdly, the state of the Israeli economy itself is a concern.  It has registered growth of over 4% at end 2018, which is encouraging.  In line with the world economy, it is expected to slow.  Continued volatility in the region will affect the state of future projects.  The official unemployment rate is 3.4%.  But when we factor underemployment and consider youth unemployment, the numbers are significantly higher.  Unofficially, and mostly unacknowledged, 20% of Israeli Jews live below poverty.  The poverty of the population is given as just under 25%, which does not bode well for the stability of the state.