Bond Sales Stutter

EghtesadOnline: Weekly bond auction data indicates a steep decline in investor interest in Islamic bonds issued by the government.

News ID: ۷۵۱۰۹۳

26 September 2020

The government on Tuesday sold bonds worth 7.1 trillion rials ($26 million) at the weekly auction held by the Central Bank of Iran. It was the lowest ever sale since weekly auctions were launched in June.

As per an earlier announcement, the CBI had offered bonds worth 52 trillion rials ($192m), according to the bank’s public relations office.

Compared to results of the last week’s auction, the bond sale declined by 76% week compared with the previous auction when the government sold debt to the tune of 30.8 trillion rials.

Bidders on Tuesday auction included one bank and two financial institutions who put in bids worth 6.1 trillion rials ($22m). The Economy Ministry accepted bids worth 5.4 trillion rials ($20m) at 20%.

The remaining bonds were bought by retail and institutional buyers in the equity market. They bought 1.7 trillion rials of bonds outside of CBI auction at 21%.

The CBI said it will hold the next auction on 29 September to offer 74 trillion rials ($270 million) worth of bonds.

The government has sold bonds worth an average 41 trillion rials ($151m) each week with total bond sales in 17 auctions amounting to 705 trillion rials ($2.6 billion).

Bonds were sold at average 18.24%. Approximately 61% of bonds have been sold in the money market to lenders and the rest in the stock market.

Auctions are intended to help the government raise funds to finance its perennial budget deficits amid the steep decline in revenues.

The government has apparently had some success and managed to compensate for half of its budget deficit in the current fiscal year (March 2020-21) via bond sales. It says it has plans to carry on with the auctions throughout the fiscal year.

The Economy Ministry has said the government will need to sell 620 trillion rials in debt, beyond the bonds sold so far,   before the current fiscal year is out to cover deficit spending needs.

In a talk with IRIB news on Thursday, Hamid Pour-Mohammadi, the Plan and Budget Organization’s economic deputy, said “the government has met its budgetary needs for the first half of the year [March 20-Sep.21] without borrowing from the CBI”.

“We tried to meet our needs by selling bonds,” he was quoted as saying.

The CBI says it supports the bond auctions for funding budget deficits and preventing the government from over borrowing from the CBI.