June 2026 Market Insights: Equities Pull Back, Bonds Hold Steady

Market Updates

Israeli equity markets had one of their weakest months since October 2023, while fixed income remained comparatively stable. Sentiment was shaped by developments on the geopolitical front: a U.S.-brokered memorandum of understanding between Israel and Lebanon aimed at reducing tensions on the northern border, alongside the existing U.S.-Iran memorandum, contributed to a more complex backdrop for investors during the month. The same diplomacy that has compressed Israel's risk premium in recent months also reset expectations in specific sectors — most visibly defense — while renewed uncertainty around the U.S.-Iran memorandum weighed on the currency.

Market Performance in June

Equities declined broadly, while bonds held their ground.

• Israeli Equities:

  • TA-35: -8.7% (YTD +12.4%)

  • TA-125: -9.5% (YTD +9.7%)

  • TA-90: -11.2% (YTD +0.1%)

• Israeli Bonds:

  • Tel-Bond 60: +0.4% (YTD +2.8%)

  • Tel-Bond Shekel: +1.0% (YTD +2.9%)

  • Tel Gov Shekel: +0.4% (+10.0% over the past year; implied yield to maturity of approximately 4.0%)

Most equity indices retain a positive return since the start of the year, though the TA-90 has given back nearly all of its 2026 gains. The declines were concentrated in telecom and technology shares, reflecting concern over the impact of artificial intelligence on local IT companies. Defense stocks also fell, as reported progress in the U.S.-Iran negotiations reduced investor expectations for continued elevated defense-sector demand.

Fixed income was steadier. The yield on Israel's 10-year government bond declined slightly to 3.69% by month-end, from approximately 3.74% at the end of May. Conservative investors extended duration in anticipation of further rate cuts. Redemptions continued in ETFs tracking local indices, alongside continued inflows into funds investing in local bonds.

The shekel weakened approximately 5.7% against the U.S. dollar during June, though it remains up 6.3% year to date. The decline reflected pension funds' hedging linkage to U.S. equity markets, negative sentiment following renewed uncertainty around the U.S.-Iran memorandum, and broad U.S. dollar strength as the Fed maintained a cautious stance.

Macro Picture

Inflation remained contained during the month. May's Consumer Price Index fell 0.3%, ahead of expectations, holding annual inflation near 1.9% and within the Bank of Israel's target range. On July 6, the Bank of Israel cut rates by 25 basis points to 3.5%. A moderate inflation environment and falling energy prices support continued easing, though a weaker shekel and a still-strong labor market are likely to keep the Bank cautious.

Local corporate bond issuance remained strong through the first half of 2026, with volumes well ahead of the same period last year, led by banks and real estate companies refinancing and extending duration while spreads stayed tight. Twelve new bond-issuing companies have joined the exchange since the start of 2026, and the issuance market remained active, though without unusual excess demand. Government issuance moderated after an unusually strong prior-year comparison.

Taken together, June's equity weakness and the shekel's pullback contrasted with an otherwise supportive rates and inflation backdrop. The relative stability of the bond market through the month suggests the moves in equities and currency reflected sentiment and technical factors rather than a shift in Israel's underlying disinflation trend.

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