Israel Bonds opinion

Israel Bonds opinion
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FW’rs what is your take on http://www.israelbonds.com/Offerings-Rates/Current-Rates.aspx

10 or so years ago I worked as a tax accountant. One of the things I noticed was that many of our Jewish clients would buy Israel bonds for their children. At the time they carried about the same interest rate as they do currently (which wasn’t great for 2006). I recently remembered they and found their site. The rates now appear to be somewhat competitive (on the 5 year mazel tov bond at least 3.42%). I bought a minor $2500 of them as a test and things have gone smoothly so far.

There are some stipulations on these bonds though:

  • They cannot be redeemed prior to maturity except in special circumstances
  • They are OID bonds so there is no coupon payment and you will receive phantom income each year for tax purposes.
  • Taxable both federal & state.
  • Some credit risk if Israel has a giant war or is destroyed.
  • They are USD denominated so no currency risk if shekel collapses.

Regarding credit risk. I honestly think it is more likely for USA to bail out Israel with any financial issues it may have than for USA to bail out its own territories of Puerto Rico/Virgin Islands.

This appears to be a program that was set up some time ago to market directly to the “Diaspora” and was prior to Israel having their public debt traded openly on exchanges. because whats strange is the official Israel government debt is only paying 1.77 for a 10 year right now so I’m not sure why this “Direct to consumer” program still exists.

Any thoughts on viability of these bonds as an investment? (please leave political beliefs out of discussion)

Thanks

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I wouldn’t like the restrictions on redeeming prior to maturity and having to pay taxes on income I wasn’t receiving.

3.42% is better than 5 yr. CD rates.

However, if you had confidence that Macy’s will still be around, they have a corporate bond maturing 1/15/2022 with a coupon of 3.875%, callable 10/15/2021, selling at a slight discount for a YTM of 3.919%. Wyndham Worldwide maturing 3/01/2022 with a coupon of 4.25%, callable 12/01/2021, selling at a premium for a YTM of 3.539%. Pricing will vary, but those are just a couple of examples my search came up with.

Using a preferred stock screener would bring up a selection of baby bonds in the mix. I recently bought a bank baby bond with a coupon of 6.375% at slightly above par, giving me a YTM of 6.14%. It pays quarterly and matures 7/31/2018.

In short, there are better options out there.

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Discussed at length here:

https://www.bogleheads.org/forum/viewtopic.php?t=155321

recently started buying preferred reits… e-reit and m-reit, yields are around 7.5% but it is risky, look for them when below par (< $25)