What makes the headlines is stocks. But the real story of the Tel Aviv Stock Exchange in 2001 was bonds.
Stocks gained strongly in the last two weeks, but not enough to wipe out losses accrued until the shocker 2% rate cut by the Bank of Israel for January. Bonds, on the other hand, climbed both at the end of last year and the beginning of this one.
The underlying reason is the consistent erosion in interest rates over the last year. Short-term interest on shekel deposits slid from 8% as 2001 began to 4% as the year ended. Real medium- and long-term interest fell from a level of 5% or 6%, to 3% or 4%. The result was that 2001 ended with fantastic returns on bonds of all kinds, with yields commensurate to leverage (the bond's range).
CPI-linked treasury bills astonished with a 20% leap. Short- and medium-term bonds rose anywhere from 8% to 15%. Shahar-type unindexed shekel bonds gained 8% to 12%. Even the Bank of Israel's short-term loans generated real yields of more than 6%.
Bond investors are probably looking at the tables of average performance and smirking. Finally they're at the party too! "Finally, my investments in provident funds/"executive insurance" policies/ some other vehicle will make me double-digit yields in 2001," they grin.
Sorry, guys. We have bad news. The average Israeli investor in any of those "low-risk" vehicles probably missed the party in 2001 too.
These are the figures. Bank Leumi's biggest provident fund, Otzma, generated a real yield of 6% in 2001. Bank Discount's No. 1 provident fund, Tamar, ended the year with a real return of 5%. Bank Hapoalim's largest provident fund, Gavish, did even worse with a 4% yield.