February 2026 Market Insights: Mixed Signals, Geopolitical Uncertainty, and a Resilient Shekel
Market Updates
February was characterized by mixed performance across Israeli markets amid heightened global volatility and ongoing geopolitical uncertainty surrounding Iran. Israeli equities showed divergent performance across indices, while corporate bond markets experienced modest declines. Global markets were influenced by shifting expectations for interest rates, geopolitical developments, and a rotation within U.S. equity markets.
Market Performance in February
In Israel, major equity indices delivered mixed results during the month:
Israeli Equities:
TA-35: +3.1% (record high)
TA-90: +2.0%
TA-125: -2.5%
Bond markets declined modestly during the month:
Israeli Bonds:
Tel-Bond 60: -0.5%
Tel-Bond Shekel: -0.3%
The yield on Israel's 10-year government bond remained broadly stable at approximately 3.84%, reflecting balanced expectations between moderating inflation and continued geopolitical risk.
Macro Picture
The January CPI, released during February, declined by 0.3%, bringing annual inflation to 1.8% — its lowest level in approximately four years and well within the Bank of Israel's 1%–3% target range.
The combination of moderating inflation and continued shekel strength increased market expectations that the Bank of Israel may resume interest rate cuts later this year, potentially at a faster pace than previously anticipated.
Despite these developments, the Bank of Israel maintained its policy rate at 4.0%, following two consecutive rate reductions earlier in the easing cycle. The decision reflects continued geopolitical uncertainty alongside ongoing economic expansion.
Fourth-quarter 2025 GDP growth came in at approximately 4.0% annualized, which the central bank characterized as above its long-term trend. Housing prices increased for the second consecutive month, indicating gradual stabilization in the real estate market.
In foreign exchange, the shekel experienced elevated volatility through the month. The U.S. dollar traded around ILS 3.12 by month-end, reflecting approximately 0.6% appreciation during the month. Earlier in February, the shekel briefly strengthened to around ILS 3.07 per dollar — its strongest level in nearly three decades.
Israel's sovereign risk premium increased modestly from approximately 70 basis points to 78 basis points, reflecting renewed geopolitical concerns.
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