Quora Answer: Are Israeli Bonds a Good Investment?

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

That is a tricky question to answer.  We need to put aside all the emotions and rhetoric and look at the numbers.

Israel will not disclose the scale of Iranian strike damage or resulting capital flight, treating it as a state secret.  The same government, and the central bank it appoints, is the source for the reassuring 2.3 per cent inflation figure and the growth forecasts cited to justify holding the bonds.  A state that withholds the numbers that look bad has no incentive to publish inflated confidence in the numbers that look good, and no independent auditor is confirming either.  Treating one set of this government’s figures as concealment and the other as reliable is not analysis.  It is selective trust.

The Downgrade Record

Moody’s cut Israel from A1 to A2 in February 2024, the country’s first-ever sovereign downgrade, citing the Gaza war’s impact on government debt.  Seven months later, on 27^th September 2024, Moody’s cut Israel again, this time by two full notches, from A2 to Baa1, leaving the country three steps above junk status, as Hezbollah’s conflict with Israel intensified following the assassination of Hassan Abdel Karim Nasrallah.  Baa1 places Israel alongside Peru, Kazakhstan, and Thailand, not the developed-market peers its economy is usually compared against.

S&P moved on a parallel track.  It downgraded Israel from AA- to A on 15^th April 2024, then cut again to A on 2^nd October 2024, citing Israel’s escalation against Hezbollah in Lebanon as a primary factor.  S&P affirmed the A rating with a negative outlook again in May 2025, warning of a possible further downgrade within a year if military conflict continued hampering growth.  Fitch cut Israel from A+ to A on 13^th August 2024, citing continued war and geopolitical risk, and the market reacted immediately: Israel’s own sovereign dollar bond due 2031 fell 0.4 cents on the dollar the following day, with the Tel Aviv equity benchmark posting its worst week in a month.

What the Agencies Said about Governance, Not Just Debt

S&P’s own commentary went beyond fiscal metrics.  It stated that the escalation in geopolitical risk pointed to “diminished quality of Israel’s institutions and governance which have not fully mitigated actions detrimental to the sovereign’s credit metrics.”  This is a credit agency questioning the government’s own institutional judgement, not merely its balance sheet.  Israeli Finance Ministry Accountant General Yali Rothenberg called Moody’s September 2024 downgrade “excessive and unjustified.”  While the government was publicly disputing the agency’s judgement, it was simultaneously withholding the war-cost and capital-flight data that would let anyone independently verify which side is right.  This is not a reassuring combination.

“Oversubscribed” Bond Sales are Not a Confidence Signal

Israel issued over US$75 billion in bonds in 2024 and over US$60 billion in 2025, tapping a further US$6 billion in early 2026 with heavy oversubscription.  Oversubscription at an elevated yield means buyers were willing to lend at the price offered.  It does not mean they consider the country safe.  It means the risk premium was high enough to attract capital regardless of the risk, which is a description of yield-chasing, not confidence.  Credit rating agencies do not oversubscribe bonds.  Three separate downgrades from three separate agencies, arrived independently, are the harder, less interested signal, and none of them has been reversed to their pre-war levels.

The Debt Trajectory

Public debt rose 20 per cent in four years.  The deficit peaked at 8.3 per cent of GDP in August 2024, and has stayed above 5 per cent for three straight years.  Moody’s own estimate put the total cost of Israel’s conflicts at US$66 billion by the end of 2025.  This is a government borrowing at record volume, during an active multi-front war, with no fixed end date.  Every growth forecast cited to offset this concern comes with an explicit condition attached: the OECD’s own more optimistic scenario assumes the regional conflict resolves within a limited window.  Its own prolonged-disruption scenario, the one this war has already outlasted more than once, projects materially weaker growth and higher inflation instead.  This forecast only holds if the war ends soon.  It is not a reason for confidence.  It is a bet on a timeline nobody controls.

Are Israeli Bonds a Good Investment?

No, not for most investors.  Aside from all the concerns raised about the economic data and the ratings downgrade, the deficit has stayed above 5 per cent of GDP for three consecutive years.  For a standard fixed-income allocation, seeking predictable, verifiable risk, none of this clears the bar.  Better-rated sovereign debt, with transparent reporting, exists elsewhere at comparable or better yield.

The Case For, Narrowly

Yes, for a narrow, specific type of investor who understands exactly what they are buying.  The yield is elevated because of this risk, and Israel has proven able to raise large sums even at that price, over US$75 billion in 2024 alone, without a failed auction.  For an investor already running a diversified emerging and frontier-market bond allocation, treating this as one high-yield, high-risk position among many, the elevated yield compensates for risk already priced into the position sizing.  For an investor holding Israeli bonds for reasons unrelated to pure return – diaspora bonds bought out of national or religious affiliation, for instance – the calculation is not a financial one at all, and this analysis does not apply to that decision.

This works for a sophisticated, risk-tolerant fixed-income investor running a diversified emerging-market or high-yield sovereign book, sized so a single downgrade or default does not threaten the portfolio.  This is not for a conservative retail investor seeking capital preservation.  This is not for an institution with a fiduciary duty requiring transparent, verifiable risk disclosure, since the government’s own data withholding makes that duty difficult to discharge properly.  Most certainly, this is not for anyone treating this as a core holding rather than a small, high-yield satellite position.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code