Julius Baer Warns of Israeli Asset Volatility Amid Election Stalemate
Julius Baer warns of short-term volatility in Israeli assets following inconclusive election results and coalition stalemates. Analysts note strong macroeconomic fundamentals will help cushion domestic markets.
Switzerland-based wealth management giant Julius Baer has published a special market review addressing Israel's recent Knesset election results, warning of short-term volatility in local assets amid an ongoing political stalemate. According to the analysis, neither political bloc has secured the 61-seat majority required to form a stable government, pointing to weeks of complex coalition negotiations ahead.
Irini Tzakridou, fixed-income analyst at Julius Baer, noted that the election saw an impressive turnout of roughly 78%—the highest in Israel since 1999—reflecting intense civic engagement within a polarized political landscape. Official data from the Central Election Committee shows the right-wing bloc led by Prime Minister Benjamin Netanyahu securing around 54 seats, slightly outperforming the opposition bloc led by Gadi Eisenkot, while Arab parties are projected to take the remaining 18 seats.
"We expect some volatility in Israeli assets in the near term, until a new government is established and provides greater clarity regarding fiscal policy, particularly regarding decisions on budgetary restraint and war expenditures," Tzakridou stated. However, she emphasized that Israel's robust macroeconomic fundamentals and the Bank of Israel's consistent monetary policy should serve as an anchor of stability against deep market shocks.
Beyond domestic politics, Julius Baer analysts addressed a notable trend in international debt markets, marked by a surge of nearly 400 basis points in spreads for low-rated CCC bonds since the beginning of the year. Afonso Borges of the fixed-income research department sought to ease recession fears, explaining that the widening spreads stem from a shrinking, concentrated market and specific distressed issuers rather than broad macroeconomic weakness.
Borges pointed out that the US CCC-rated bond market has contracted to USD 123 billion, down from USD 171 billion at the end of 2025, representing a historic low of just 8.5% of the high-yield bond universe. Consequently, index fluctuations are easily driven by isolated events rather than a systemic crisis. The bank advises investors against blanket reductions in credit risk exposure, recommending a continued preference for higher-quality credit assets in the current environment.
