As Israel’s military campaigns in Palestine, Lebanon, and Syria continue, Israel’s debt load is skyrocketing and its economy is struggling to keep pace. In the last 19 months, Israel’s credit rating has seen two significant downgrades, with credit agencies specifically naming their ongoing military operations as a concern about their economic outlook. These recent credit rating downgrades and Israel’s ongoing reliance on debt markets and unstable economic forecasts makes Israeli debt a more risky investment than ever. However, state and municipal U.S. treasuries and other institutional investors continue to buy into Israel’s debt through the purchase of bonds.
For decades, many U.S. state, local, and municipal governments have invested public money in the State of Israel through the purchase of bonds. Recently, several state governments have increased their investment in a “symbolic” show of support for Israel, despite the increased fiduciary risk presented by these investments.
To cast a broader picture of Israel’s debt landscape, this report provides an overview of Israel’s debt structure, its process of raising funds, and some of the key players involved. In reviewing publicly available data about Israel’s economy, we found:
- Israel’s economy is in deep trouble. The combination of waging a costly, permanent war and successful BDS campaigns and investor activism is creating significant consequences for Israel’s economy. Tens of thousands of Israeli businesses have gone bankrupt. The tourism industry is in crisis. The government raised taxes to pay for war. And, most significantly, three big Wall Street credit agencies downgraded Israel’s public credit rating for the first time in the country’s 76 year history. Moody’s Ratings downgraded Israel’s credit rating to Baa1, three rungs above a “junk” rating. The outlook from the three credit agencies is negative, meaning more downgrades could be coming in the future. Credit ratings are very important to governments, because lower credit ratings make borrowing more expensive.
- Israel is increasingly reliant on debt to fund its activities. External debt (i.e. debt owned by foreign investors, especially U.S. investors) plays an integral role in funding Israel’s war machine. As of 2023, about 23% of Israel’s total public debt (excluding pensions and insurance) was owed by foreign investors. By comparison, in 2016 it was 18%.
- Israel issues three types of bonds to foreign investors – ‘Israel Bonds,’ sovereign bonds, and U.S. guaranteed bonds. Each type of bond has its own legal and financial frameworks. Israel Bonds are underwritten by the Development Corporation for Israel and aren’t sellable, meaning there is not a secondary market for them. Sovereign bonds are underwritten by banks and they can be sold in the financial markets. U.S. guaranteed bonds are bonds backed by the full faith and credit of the government of the United States. If Israel defaults on these bonds, the U.S. federal government will pay for them, thus serving as an ultimate financial safety net.
- Sovereign bonds comprise most of Israel’s external debt, but Israel Bonds have played an increasingly important role in funding its war machine since October 2023. As of December 2023 (the most recently available public data), Israel’s total outstanding external debt totaled $49.7 billion: $39.6 billion in sovereign bonds (80%), $6.3 billion in Israel Bonds (13%), and $3.4 billion in U.S. guaranteed bonds (7%). In 2023, after Israel began its war on Gaza, its reliance on Israel Bonds increased for the first time since at least 2009. It is likely that future public disclosure will show that this increase has continued in 2024 and 2025.
- A handful of big banks including Bank of America, Goldman Sachs, and Citi, make millions of dollars underwriting sovereign bonds for Israel. In March 2024, Israel issued $8 billion of sovereign bonds. Bank of America, Goldman Sachs, BNP Paribas, and Deutsche Bank made $12.7 million in fees for underwriting the bonds. In February 2025, Israel issued $5 billion of sovereign bonds. Bank of America, Citigroup, Deutsche Bank, Goldman Sachs, and JP Morgan made $5 million in underwriting fees. Citibank is the fiscal agent for both issuances.
This primer provides some general characterizations of Israel’s debt structure, including the three types of bonds that Israel issues for foreign investors: ‘Israel Bonds’, sovereign bonds, and U.S. guaranteed bonds. It highlights that each type of these bonds has its own legal and financial framework that must be taken into account to understand Israel’s debt funding strategies. A key finding is that even though ‘Israel Bonds’ are the most known Israeli bond in the U.S., sovereign bonds comprised most of Israel’s external public debt until 2023. Israel was decreasing its usage of ‘Israel Bonds’, but the current war against Palestinians changed that trend. The primer also analyzes the relationship between the war and the credit rating downgrades that Israel has taken for the first time in its history.