No Israeli Bloc Has a Clear Path Toward a Majority. Its Bonds and Currency Are Falling.

Israeli bonds and the shekel are falling on Wednesday after no bloc managed to get a clear path toward a majority in the elections on Tuesday.

The country's currency dropped up to 2% against the U.S. dollar and the Tel Aviv 35 stock index fell about 2.3%. Moreover, bond yields climbed, with the 2-year note gaining 6 basis points and the benchmark 10-year bond gaining 8 basis points.

Israeli Prime Minister Benjamin Netanyahu's Likud party got the most seats in the election, but it is well short of those needed to form a ruling coalition.

The Likud gained 26 seats with more than 85% of the votes counted, with the coalition that includes religious parties led by Itamar Ben-Gvir and Bezalel Smotrich reaching 53 seats, still well short of the 61 needed to form a ruling coalition.

Opposition leader Gadi Eisenkot got 21 seats, climbing to 48 when adding the rest of the coalition. He would have to reach a deal with Arab parties, who overperformed and gained 19 seats, to pass the threshold. The chairman of the Joint List, Yousef Jabareen, said any party seeking to oust Netanyahu will have to negotiate with his coalition and showed willingness to be part of it.

"It is either continued racism, continued exclusion and continued supremacy, or genuine Jewish-Arab partnership," he said. The opposition coalition and the Joint List on their own don't pass the threshold and also need the support of Ra'am, the other Arab party, which gained 7 seats.

Israeli President Isaac Herzog urged all parties to avoid a new election, calling them to approach negotiations with an "open mind."

Eisenkot claimed after the initial results that the people of Israel chose change. "The coalition of failure has lost the people's trust. The Israeli public voted against Benjamin Netanyahu continuing as prime minister," he added. He went on to call on netanyahu to "accept the people's verdict and announce today that he is leaving political life."

"To the millions who voted today for conscription for all, for new leadership, I promise you: I will do everything in my power to form a Zionist government that drafts everyone," Eisenkot added.

Netanyahu, on his end, said that his "right-wing bloc has a clear, decisive majority among the Zionist public and among the Jewish population as a whole." He didn't suggest for a unity government with Eisenkot, calling for "a strong Jewish right-wing national government."

"We must not endanger Israel by forming a government that relies on anti-Zionist Arab parties," Netanyahu added.