2023-12-21 09:16:53
Bank of Israel Governor Prof. Amir Yaron has expressed optimism about the prospects of decreasing inflation, leading to a state of monetary expansion and lower interest rates for Israel. The Governor’s remarks were made at Globes’ Israel Business Conference on Tuesday.
Although the Governor refused to comment on the timing of lowering the interest rate, market expectations suggest that an interest rate cut in Israel is expected as early as the beginning of 2024. Similarly, the US Federal Reserve has signaled an imminent interest rate cut of 3 during the next year.
As expectations for interest rate cuts increase, the capital market has priced the monetary move in the debt market, resulting in higher interest rates being demanded by investors. Bond yields, which have been at record levels in the past two years following interest rate hikes, have been falling sharply for the past few weeks. For example, in the US, 10-year bond yields fell from the 5% range to about 3.9% on Wednesday, reflecting a profit of about 7% in what is considered the safest and most solid asset in the investment portfolio.
Investment professionals are divided on the current state of the market. Hagai Schreiber, Phoenix’s chief investment officer, spoke at the conference, stating that the company recognized the high yields in the corporate bond market and advised investment managers to act quickly. On the other hand, Mor estimates that most of the opportunities have already fled, suggesting that the train has left the station.
Yuval Beer Even, director of partner investments at Migdal Insurance and Finance, highlighted the opportunities and risks associated with investing in the bond market. While investors have recorded significant profits in the last month and a half, some caution is advised regarding the aggressive expectations of interest rate cuts in the US.
Robert Carmeli, Chief Investment Manager at Four Seasons of the IBI Group, emphasized the appeal of the bond component in both the US and Israel. He suggested that a long-term investment portfolio consisting of bonds of quality firms within various sectors could yield a return that rivals the modest interest rates offered in deposits.
Looking ahead, Yotev Kostika, joint CEO of Bemore mutual funds, urged investors to be more selective, warning that the margin of error is starting to get higher as the Bank of Israel could ‘disappoint’ the market’s expectations and wait with the interest rate cuts.
Investors are advised to focus on bonds with investment ratings and avoid looking for adventures in bonds that carry a double-digit return, especially in the local market that is surrounded by uncertainty and a state of war. Additionally, a reminder was made that hedging the investment in American bonds comes at a cost for Israeli investors.
While there are still investment options available, it is clear that caution and selectivity are crucial in navigating the current market conditions.
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