Activity in the bond market

Purchasing government bonds

Intervention in the government bond market due to the COVID-19 crisis

Due to a significant worsening of economic conditions in the Israeli economy and an increase in volatility in the financial markets in view of the spread of the COVID-19 virus, the Bank of Israel Monetary Committee decided in March 2020 to launch a program of purchasing government bonds in the secondary market.  The aims of the program were to ease the terms of credit in the market and to support economic activity and financial stability.  The bond purchases were intended to allow the Bank of Israel to influence bond yields in the market along the entire indexed and unindexed curve, and to lower the cost of longer-term credit for companies and households as a complementary tool to the short-term interest rate.  The bond purchases were also intended to enable the Bank of Israel to moderate sharp fluctuations in bond yields as a result of a lack of liquidity in the financial markets, and to act to stabilize the markets.

Purchasing government bonds during the 2008–9 Global Financial Crisis

During the Global Financial Crisis in 2008–9, the Bank of Israel began purchasing government bonds in the open market in order to support the liquidity of the financial system and to increase the effectiveness of monetary policy.

Purchasing corporate bonds

In July 2020, the Bank of Israel announced that it would begin purchasing corporate bonds in the secondary market.  The aims of the program were to ensure the continued proper functioning of the corporate bond market, and to strengthen the pass-through from monetary policy to the credit market by reducing the interest rate at which companies raise credit in the capital market and freeing up additional sources for credit to all industries.

The Bank announced that it would purchase NIS 15 billion worth of bonds based on a broad benchmark of securities. The benchmark included only companies rated A- and higher, and did not include foreign companies’ bonds, bonds with an equity component, or bonds that are not indexed to the shekel and are not fixed rate. The market value of corporate bonds in Israel was approximately NIS 341 billion, and the benchmark covered 75 percent of the market.