Tel Bond Index / Israeli Corporate Bond Market

The Tel Bond indices are the benchmark measures for Israeli corporate bonds traded on the Tel Aviv Stock Exchange (TASE). Israel has one of the largest corporate bond markets relative to GDP in the world — a structural legacy of the 2005 Bachar Reform, which prohibited Israeli banks from owning mutual funds and underwriting corporate bonds simultaneously, forcing Israeli companies to access capital markets directly rather than through bank loans. Key Tel Bond indices: (1) Tel Bond-60: tracks the 60 largest and most liquid NIS-denominated Israeli corporate bonds by outstanding balance. The index covers bonds from Israeli banks (Bank Leumi, Bank Hapoalim, Mizrahi-Tefahot), real estate companies (Azrieli Group, Bayside Land), and industrial conglomerates; (2) Tel Bond-Shekel: nominally-linked corporate bonds, sensitive to changes in the nominal interest rate (similar to US investment-grade corporate bonds); (3) Tel Bond-Linked: CPI-linked corporate bonds, behave like US TIPS-adjacent instruments, rising in face value with Israeli CPI. Characteristics unique to Israeli corporate bonds: (A) High-yield prevalence: the Israeli corporate bond market has historically included a significant proportion of bonds rated BBB and below — lower than US IG standards — because Israeli pension regulations require pension funds to hold bonds but do not impose strict rating floors; (B) Covenant-light tradition: Israeli corporate bonds historically had lighter protective covenants than US high-yield bonds, creating higher default risk in downturns (the 2009 post-crisis wave saw significant Israeli corporate bond restructurings); (C) Pension fund dominance: Israeli Keren Pensia funds and Gemel funds collectively hold approximately 60% of outstanding Israeli corporate bonds, making institutional behavior more correlated and potentially amplifying both rallies and selloffs; (D) TASE Real-Time pricing: unlike most US bond markets (OTC), Israeli corporate bonds trade on TASE during market hours with real-time price discovery — enabling more transparent portfolio valuation for pension funds.

An Israeli pension fund manager allocating between Tel Bond-Linked and Tel Bond-Shekel bonds must evaluate the break-even inflation rate: if Tel Bond-Shekel yields 4.5% nominally and Tel Bond-Linked yields 1.8% real, the break-even inflation is 2.7%. If the manager expects Israeli CPI to exceed 2.7% over the bond's life, Tel Bond-Linked is preferred; below 2.7%, Tel Bond-Shekel. In 2022, when Israeli CPI rose to 5.4%, holders of Tel Bond-Linked bonds significantly outperformed Tel Bond-Shekel holders.