Israel returns financing focus to local market after global bond spree

JERUSALEM, May 19 (Reuters) - Israel is likely to focus on local bond markets for the rest of 2020 as it finances a soaring budget deficit in the wake of the coronavirus crisis, a senior Finance Ministry official said, having already raised $10 billion globally so far this year.

Israel’s deficit is expected to triple to more than 10% of gross domestic product after the government approved a stimulus package of 100 billion shekels ($28 billion) and as tax revenue slid.

The official said monthly bond issuance had already doubled to 10 billion shekels and the state had raised 46 billion shekels on local markets this year. Total funding will likely top 200 billion, up from 136 billion in 2019 -- two-thirds of which was raised locally.

“The local market is very efficient, cheap and liquid,” the official, who declined to be named, told Reuters, noting demand remained strong at weekly government bond auctions.

But he said the deficit this year was unusual in that a large amount of money was needed in the second quarter, testing the short-term capacity of the domestic market.

Israel sold $1 billion of 100-year bonds in international markets as part of a record $5 billion fundraising in April, and $5 billion in 40-year bonds in Asian markets.

“We needed the money very quickly and to raise almost 40 billion shekels from the domestic market in one night was not something doable,” the official said.

He said it was “less likely” Israel would issue a large global benchmark again in 2020 but much depended on whether there would be a second wave of the virus.

Full funding needs for 2020 and 2021 will only be known once the new government approves a budget, expected within 90 days.

The April fundraising had also alleviated a spike in domestic bond yields.

“By issuing in the global market and together with the Bank of Israel doing its quantitative easing, we have the same yields today as when we started the crisis,” the official said.

The central bank said it will buy up to 50 billion shekels of government bonds.

Last week, Israel updated its bond prospectus with the U.S. Securities and Exchange Commission to raise up to $15 billion in the future, following a similar move in Europe.

$1 = 3.5212 shekels Reporting by Steven Scheer; Editing by Kirsten Donovan