SEO Anxious About Rise in Bond Yields

EghtesadOnline: The managing director of the Securities and Exchange Organization has called on the Central Bank of Iran not to raise the yields on bonds to avoid harming the stock market.

News ID: ۷۸۶۲۷۷

16 March 2021

Talking on a radio program on Sunday, Mohammad Ali Dehqan-Dehnavi said both the capital market and debt market need to grow in tandem.

"We call on the central bank to regulate bond rates to levels that won’t undermine the bourse and the appeal of stock investors," he was quoted as saying by the Securities and Exchange News Agency.

In recent months stock market authorities have singled out the role of the CBI in the market plunge blaming the monetary regulator for “manipulating bond rates and interbank interest rates” advertently or otherwise.

The main index of Tehran Stock Exchange, TEDPIX, shot up fourfold in less than five months (March-August 2021) before losing half its value and plunging to 1.1 million points -- down from a record high of 2.1 million points.

That was seemingly spurred by excessive share supply by institutional and main shareholders, many of whom are giant commodity companies affiliated to the government.

However, groups of economic experts and market observers say the central bank had a role in triggering the bubble burst.

Amid mounting criticism of the performance of the stock market authority and its failure to halt the steep decline in share prices, the Economy Minister Farhad Dejpasand in January censured CBI monetary policies saying that it had played an unhelpful role in the market volatility that wiped out billions from the saturated market flooded by millions of neophytes.

In particular he recalled the steep fluctuations in interbank interest rates in the first few months of current fiscal year, which apparently made the bourse more attractive for investors.

Yield in the debt market was around 15% in May when the CBI staged a series of weekly auctions to sell government bonds. Rates increased steadily to 21.5%.

As per CBI data, interbank rates were choppy in the past 11 months. The rate on average was 18.95% last year (March 2019-20) before abruptly dropping to 10% in May that in fact laid the foundations for the unprecedented rise in share prices.

Interbank rates began to rise steadily in the months after to reach 23.2% in late October. The rate was reported around 20% in the month to Dec. 20. The CBI said earlier that month that the interbank market had declined to 19.7%, and it had no plan to raise rates.

"When interbank interest rates jump abruptly to 20% it is obvious that the share market will be affected," the minister complained.

Observers have said that the sharp decline in interbank rates was indeed a “positive signal to the stock market” and the main cause behind the departure of liquidity from banks to the bourse as parking money in banks was no longer attractive.