THE U.S. PLANS TO HALVE DIRECT MILITARY AID TO ISRAEL UNDER A NEW AGREEMENT, WITH ASSISTANCE GRADUALLY PHASED OUT OVER FIVE YEARS STARTING IN 2028, CUTTING MILITARY FINANCING FROM $33 BLN OVER 10 YEARS TO $16.5 BLN OVER FIVE YEARS WHILE INCREASING FUNDING FOR JOINT MISSILE DEFENSE PROJECTS - YNET

The U.S. is reportedly planning a new agreement to halve direct military aid to Israel, phasing assistance out gradually over five years beginning in 2028 and reducing military financing from $33 billion over ten years to $16.5 billion. The primary market transmission channel is sovereign risk and fiscal planning: a multi-year reduction in a major external security funder alters Israel's medium-term defense budget assumptions, which can feed into shekel valuations, sovereign bond spreads, and credit-rating outlooks as investors reassess the cost of financing defense spending. Israeli government bonds and the shekel are the most directly exposed, since the adjustment would require either higher domestic defense allocations, greater reliance on local borrowing, or reprioritization of spending. Israeli equities in defense-adjacent and domestically funded sectors could also see repricing if investors weigh the implications for future budget deficits. A key event to watch is the Israeli Finance Ministry's next budget proposal and any official confirmation or detail of the agreement's terms, which would clarify how the reduction interacts with existing commitments.

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