For the first time since the outbreak of the global financial crisis, the Finance Ministry has indirectly intervened in the depressed corporate-bond market to neutralize the impact of market volatility. "In an effort to enable financial bodies to invest in corporate bonds without being exposed to recent sharp volatility in prices, it was decided to allow provident and pension funds and insurance companies to buy corporate bonds of Israeli companies without having to revalue these bonds to market rates in the event of a loss, thereby neutralizing market volatility," Yadin Antebi, the Finance Ministry's supervisor of capital markets, insurance and savings, said Tuesday. Bonds are traded on the stock exchange and thus their price changes every day. In times of a severe crisis in the capital markets, bond prices drop sharply and their yields soar. In an effort to keep bonds from falling far below their value, the Finance Ministry will allow institutional investors to buy new corporate bonds set at their book purchase price, without having to revalue these bonds in the event of a loss. Under the new ruling, these bonds will be limited to 3 percent of the assets of institutional investors and will have to be held in a separate account. Total assets of institutions amount to NIS 486 billion; the Finance Ministry's new ruling will allow institutional investors to buy corporate bonds up to an aggregate of NIS 15b., without having to report a loss on them, in an effort to neutralize market volatility. In exchange, institutional investors will be required to hold the corporate bonds until maturity. The Finance Ministry hopes that the measure will encourage financial institutions, which have stayed away from the corporate-bond market in recent weeks, to buy corporate bonds to ease the market failure and reduce the damage to the returns of the provident funds. Corporate bonds are a component in provident fund, pension fund and executive insurance portfolios, and therefore the recent sharp declines in prices constitutes a major part in the shrinking of the public's long-term savings. Pensions have an exposure of up to 60% to corporate bonds. Following the Finance Ministry's announcement, the Tel-Bond 20 and Tel Bond 40 indexes, which track corporate bonds on the Tel Aviv Stock Exchange, closed up 2.5% and 1.5% respectively, after plunging more than 10% in recent weeks.
