One of the largest investors in Israel’s bonds is not a hedge fund titan or a Wall Street trader, but an elected municipal comptroller investing the tax dollars of Palm Beach County.
Joseph Abruzzo, the overseer of investments for Florida’s largest county, holds $700mn out of his $4.6bn overall portfolio in so-called Israel bonds. These are special overseas debt issuances that have been scooped up by US state and local governments since the conflict between Israel and Hamas began.
“I’m ecstatic that we have these bonds in our portfolio,” Abruzzo told the Financial Times. He cited “the great returns, the safety, and the benefit to the taxpayers of Palm Beach County” of debt that is becoming an important, but also controversial, part of Israel’s efforts to finance a longer war.
Israel Bonds, the official underwriter for the debt, says it has sold more than $3bn of the debt worldwide, three times the annual average, since October 7 last year — the date of the Hamas assault that triggered the latest conflict. Local governments in the US including the states of Florida, Indiana and Ohio have been enthusiastic recent buyers.
Sold directly to US investors sympathetic to Israel’s cause, such bonds are becoming an increasingly high-profile part of the country’s external funding. Last year they accounted for one-quarter of Israel’s external debt issuance, and are helping buttress a wartime budget deficit that swelled to 7 per cent of GDP in the year to April due to military spending.
But the bonds have also become a focal point for both supporters and divestment campaigners, amid mounting tensions over US backing for an ally whose conduct in the war has been heavily criticised by many observers.
Israel also sold $8bn in more conventional international US dollar bonds in March, receiving $38bn of orders and involving “about 400 different investors from about 36 countries”, the finance ministry said. The country’s regular local currency borrowings, meanwhile, amounted to 12.25bn shekels ($3.3bn) of scheduled sales in May. But Israel bonds have expanded as a share of overall debt issuance.
Abruzzo — who says he has received, “without exaggeration, full-room applauses and standing ovations” at community meetings for buying the bonds — said he was the first American investor to place an order for the Israel bonds after the October attack by Hamas.
He has since broken a record for the most of these bonds purchased in a single day, at around $135mn. A board-imposed cap on his investments was also recently lifted to 15 per cent of the portfolio. In May the state treasurer of Ohio also added $30mn to their holding of more than $260mn of the debt.
The bonds, which are difficult to sell and are designed to be held to maturity, were for many years mostly marketed to the global Jewish diaspora by Israel Bonds, a state-backed entity also known as the Development Corporation of Israel.
Calling itself one of the country’s “most valued economic and strategic resources”, it has sold more than $50bn of the debt since David Ben-Gurion, Israel’s founding prime minister, launched it in the 1950s. Certificates for small amounts were even pitched as bar and bat mitzvah presents.
They are now being bought up across the US heartland due to a combination of political solidarity with Israel, demand for yields above those of US Treasuries but with a perceived low risk, and laws that have for years gradually placed Israel’s debt among the few permitted bond investments for typically staid local government portfolios.
The investments by Palm Beach, as well as Miami-Dade, Broward and other Florida counties, were made possible by a 2008 state law that added Israel bonds to US Treasuries, federal agency-backed debt, money market funds and other low-risk assets. No other foreign government bonds are allowed.
While their weighting in the Palm Beach portfolio is “unique”, Israel bonds have also benefited from a steady shift among US states and counties to improve returns from their investments, said Justin Marlowe, director of the Center of Municipal Finance at the University of Chicago’s Harris School of Public Policy.
Abruzzo said he always planned to buy more of the bonds when he took office in 2021. Yields that are substantially higher than equivalent US Treasuries have helped drive his portfolio’s annual income from investments from $27mn to $173mn during his tenure.
“When I got elected, I did not have a relationship with Israel bonds — I was simply looking at the numbers in the portfolio,” Abruzzo said. The big problem until recently had been finding enough of the paper to buy, he added. “I’ve been sitting on the sidelines for years waiting to buy these bonds.”
There are still limits on how many Israel bonds even enthusiastic local government investors can buy. Because they need to make cash readily available for spending, they usually cannot invest in longer maturities.
Divestment campaigners including Jewish Voice for Peace, which has launched street protests against Israel bonds, oppose any exposure on the basis that the cash raised could be used to fund the campaign in Gaza.
“The reality is that it’s horrifying that our states, our counties, our other community institutions are investing directly with no restrictions and no conditions to ensure human rights are upheld,” Dani Noble, a campaign organiser at Jewish Voice for Peace. “Israel bonds directly provide unrestricted and unaccountable financial support,” she added.
Israel Bonds said that “this small but vocal group of protesters cannot distract from the undeniable truth” of “unprecedented support” for the debt since the start of the war. “We look forward to building on this success in the months ahead and continuing to make clear that boycott efforts are doomed to fail,” it added.
Local campaigners recently announced that they would bring a lawsuit over Palm Beach’s bond holdings after protesting outside county offices.
“I think we are going to see much more intense pressure on divestment,” Marlowe said. “I have gotten a lot more questions in recent weeks about how local government investment pools work, because there are a lot of people who are preparing pressure campaigns,” such as recent ones focused on university endowments’ exposure to Israeli investments, he added. “I fully expect that there is going to be litigation over this.”
Abruzzo, a former Florida state senator, remains a keen backer, however.
Protests over the bonds “will never have any impact on me or our office”, he said. He added that he had no concerns about getting paid back on the bonds.
“The only way that we would get hurt is if Israel isn’t a nation any more. And that isn’t going to happen.”
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