Demand for Israeli government issued bonds is soaring, according to Bloomberg Business Week.

Israel’s strong fiscal standing, coupled with low interest rates as a result of the European debt issues, are driving yields on Israeli bonds to extreme lows.  It’s a trend that has continued from the end of 2011.

On December 19th, the Bank of Israel sold 2 billion shekels worth of short term bonds with an average yield of 2.58% and 9 billion shekels worth of 364-day notes at an average yield of 2.5%. Earlier that month, yields on the same notes were 2.7 and 2.8 respectively.

As demand for bonds rises, yields generally go lower, while the cost of purchase goes up.  In the past, institutional investors, such as state governments, have been big purchasers of Israeli backed bonds.

The overall health of the Israeli economy is expected to outpace most of the developed world in 2012, with an expected GDP growth rate of 2.8%.  That number is in stark contrast to the expected 1.6% median growth expected from the rest of the developed world, according to the Organization for Economic Cooperation and Development.  For Israel itself, the 2.8% number is down from the past two years, where annual growth came in at 5% in 2010 and 2011.

The first 2012 bond auction, administered by the Finance Ministry, will take place on January 9th.