Introduction
MAKAM is one of the most distinctive instruments in Israel’s money market. Issued by the Bank of Israel with maturities of up to roughly one year, these zero-coupon bills provide a tradeable short-term interest-rate benchmark and a tool for absorbing liquidity. They sit between the policy rate and the government-bond market, making them particularly useful for reading near-term monetary expectations.
Although MAKAM resembles a Treasury bill in economic form, the issuer is the central bank rather than the government. That distinction matters. The instrument is part of monetary operations, not fiscal financing, and its supply is connected to the Bank of Israel’s management of shekel liquidity.
How MAKAM Works
A MAKAM bill is sold below its redemption value and pays the holder the face amount at maturity. The difference between the purchase price and redemption value represents the investor’s return. Because the instrument does not rely on periodic coupon payments, its pricing is relatively straightforward and closely linked to expected short-term interest rates.
The Bank of Israel issues MAKAM regularly, creating a ladder of maturities across the coming year. Auction results and secondary-market yields provide a continuous picture of how investors price the short end of the curve. For analysts, these yields can be compared with the current policy rate and expected future decisions.
Liquidity Management
Central banks use market instruments to influence the amount of liquidity available to the banking system. Issuing short-term bills absorbs shekels from investors, while other operations can add liquidity. The objective is to keep money-market conditions consistent with the monetary-policy stance rather than allowing excess or scarce liquidity to drive rates away from the intended level.
This function becomes more important when balance-sheet conditions change rapidly. Large government cash flows, foreign-exchange transactions or shifts in bank reserves can alter system liquidity. MAKAM gives the Bank of Israel a flexible instrument for managing those effects while preserving a market-based price for short-term money.
What MAKAM Yields Tell Investors
Because MAKAM maturities extend across the next year, their yields provide information about the expected path of monetary policy. If a six-month bill trades well below the current policy rate, markets may be pricing future easing. If yields rise above the current rate, investors may expect tightening or demand additional short-term risk compensation.
The signal is strongest when the entire short curve moves coherently. A single issue can be affected by supply or liquidity, but a broad repricing across several maturities usually reflects a change in expectations. Comparing MAKAM with short government securities and derivatives can strengthen the interpretation.
MAKAM and Inflation Expectations
Short-term nominal yields also contribute to the market’s assessment of inflation. The Bank of Israel uses several sources to evaluate inflation expectations, and money-market pricing helps reveal what investors believe policy will need to do in response to near-term price pressure. MAKAM is therefore part of the information set linking inflation data to the expected policy path.
Investors should still avoid treating the yield as a pure forecast. Liquidity, technical demand and risk premiums can influence pricing. The instrument is most useful when read alongside inflation-linked government bonds, official expectations data and the central bank’s own communication.
What Investors Should Watch
The most useful MAKAM signal is the shape of yields across successive maturities relative to the Bank of Israel rate. A smooth downward slope may indicate expectations of easing, while a rise across the strip can signal tighter expected policy. Auction demand and allocation data can then show whether the move reflects a broad change in expectations or a more technical supply effect.
Because MAKAM sits at the short end of the market, it should be combined with overnight conditions and the first years of the government curve. When all of these instruments reprice together, the market is usually sending a coherent policy signal. When they diverge, liquidity and technical factors deserve closer attention.
Conclusion
MAKAM is a small instrument with an important role. It provides a transparent short-term market price, helps the Bank of Israel manage liquidity and gives investors a window into expectations for monetary policy over the coming year.
For a BondStats Israel monitor, MAKAM should form the front edge of the domestic curve. Combined with the Bank of Israel rate, nominal government bonds and real yields, it helps connect daily money-market conditions with the broader fixed-income regime.