Bond Buyers Skeptical

EghtesadOnline: The weekly bond auction held by the Central Bank of Iran tumbled on Tuesday after doing relatively well last week.

News ID: ۷۸۵۶۹۵

01 January 2021

Total sale this week reached 16.4 trillion rials ($66 million), down 66% compared to last week. Bonds were sold to three banks who put in bids worth 8.1 trillion rials ($32m) at yields varying from 20.5% to 21.5%, respectively, for two and three-year maturity bonds.

Outside the auction process, retail and institutional traders bought 8.3 trillion rials at the stock market, according to data seen on the Central Bank of Iran website.

A week before the government sold bonds worth 48.8 trillion rials ($195m), the highest weekly sale since Sept. 8 and a whopping 240% growth compared to the previous week.

Starting in May, the auction is a government initiative to help plug its deepening budget deficits. Bond auctions were relatively successful in the first several rounds, but plunged sharply with the start of autumn.

The government sold bonds worth 145 trillion rials ($580m) in the auctions in the third quarter the current fiscal year (Sept. 22-Dec. 20). That, however, was way lower than the average weekly sale of 40 trillion rials ($150m) in the second quarter.

So far it has generated 890 trillion rials ($3.5 billion) from 31 auctions to sell debt. Inquiries by the Persian-language economic website eghtesadnews suggest the total budget deficit is near 1,200 trillion rials ($4.8b).

The government intends to make 360 trillion rials from selling debt or 30 trillion rials every week before the current fiscal year is out in March. It has put up 125 trillion rials ($500m) for next week’s auction on January 5.

Bond auctions are strongly supported by the CBI due to its reported positive impact on monetary variables and contribution to CBI monetary policy.

Bond sale has reportedly helped cover the budget deficit to a considerable degree and helped avoid borrowing from the CBI that in the past fueled inflation by increasing the monetary base.

Banks also have been asked to hold enough bonds to be able to operate in the interbank market and borrow from the CBI under the newly launched open market operation policy.

High Hopes

Grappling with unprecedented budgetary challenges, the government had pinned high hopes on the debt market.

Addressing a Cabinet meeting on Wednesday, President Hassan Rouhani pointed to the increasing role and significance of bonds in funding the economy hurting from a deep decline in oil revenue, misplaced spending and the economic siege imposed by Donald Trump, the super destroyer Republic US president.

He said his administration had replaced borrowing from the central bank with selling bonds. "We have not borrowed a rial from the CBI. We have borrowed from the people and repay them with interest.”