JERUSALEM
Israel's President Isaac Herzog officially tasked opposition leader Gadi Eisenkot with forming the next government, giving him 28 days to secure a coalition majority in the 120-seat Knesset.
Bond investors are already repricing Israeli sovereign risk. The spread between Israeli government bonds and comparable U.S. Treasuries typically widens during coalition negotiations as traders demand higher risk premiums for the uncertainty. Any prolonged political dysfunction could crimp demand from foreign institutional buyers and force higher yields on new issuance. Duration risk for existing bondholders rises if fiscal policy becomes unpredictable—the central bank has warned repeatedly against coalition governments built on unfunded spending programs.
The Israeli Shekel is trading weaker as political noise mounts. Foreign investors viewing government instability as a red flag have begun rotating out of local assets, applying direct downward pressure on the currency against the U.S. dollar. Shekel depreciation raises import costs and feeds domestic inflation, complicating the Bank of Israel's ability to maintain price stability even if political gridlock prevents any new fiscal spending.
Eisenkot must deliver a functioning government by December 6. Failure to secure a majority would extend the political limbo, likely keeping Israeli spreads elevated and the Shekel depressed until a clear fiscal path emerges.
