Bonds — A Guide to Conservative Investing

What are bonds, types of bonds, risks and returns, and how to include bonds in a balanced investment portfolio.

Bonds (Agrot Chov in Hebrew) are loans that you make to a government or corporation in exchange for regular interest payments and the return of your principal at maturity. In Israel bonds play a central role in both personal investment portfolios and the pension system.

How Bonds Work

When you buy a bond, you are lending money to the issuer. They promise to pay you a fixed or variable interest rate (the coupon) at regular intervals and return your principal (the face value) on a specific date. Israeli government bonds (Agach Memshaltit) are considered among the safest investments available.

Types of Bonds in Israel

Government bonds come in several flavors: fixed-rate (Shahar), CPI-linked (Galil) that protect against inflation, and short-term T-bills (Makam). Corporate bonds offer higher yields but carry more risk. The Tel Aviv Bond indices track the performance of these different categories.

Why Include Bonds in Your Portfolio?

Bonds provide stability and predictable income. When stock markets fall, bond prices often hold steady or rise, providing a cushion for your portfolio. For investors nearing retirement, shifting a larger portion of savings into bonds reduces the risk of a market crash right before you need the money.

CPI-Linked Bonds — An Israeli Specialty

Israel's CPI-linked government bonds (Galil series) are particularly popular because they protect your purchasing power from inflation. The principal and interest payments adjust with the Consumer Price Index, which is especially valuable in periods of rising prices. They are a staple of conservative Israeli investment portfolios.

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The information on this page is for educational purposes. Please consult a professional before making financial decisions.

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Frequently asked

+−What types of bonds are available in Israel?

Israeli government bonds include fixed-rate (Shahar), CPI-linked inflation-protected (Galil), and short-term T-bills (Makam). Corporate bonds offer higher yields but more risk. All trade on the Tel Aviv Stock Exchange.

+−Why should I include bonds in my portfolio?

Bonds provide stability and predictable income. When stock markets fall, bonds often hold steady or rise, cushioning your portfolio. As you approach retirement, shifting more into bonds reduces the risk of a crash right before you need the money.

+−What are CPI-linked bonds?

CPI-linked government bonds (Galil series) adjust their principal and interest payments with the Consumer Price Index, protecting your purchasing power from inflation. They are a staple of conservative Israeli investment portfolios.

+−How are bond returns taxed in Israel?

Interest income from Israeli government bonds is taxed at 25% for individuals. Corporate bond interest is also taxed at 25%. CPI-linked bond gains on the inflation adjustment component may receive different treatment.

+−What is the difference between Shahar and Galil bonds?

Shahar bonds pay a fixed nominal interest rate and are not adjusted for inflation. Galil bonds are linked to the CPI, so both principal and interest rise with inflation, providing real purchasing power protection.

+−Can I buy individual bonds or should I use a bond fund?

Both options work. Individual bonds give certainty of returns if held to maturity. Bond funds provide diversification and professional management but have no fixed maturity date and fluctuate in value.

+−What role do corporate bonds play in an Israeli portfolio?

Corporate bonds offer higher yields than government bonds in exchange for taking on credit risk. The TASE has an active corporate bond market. Diversify across issuers and consider bond ratings to manage risk.