Bonds Fail to Provide Refuge

EghtesadOnline: The weekly government bond auctions held by the Central Bank of Iran again failed to attract buyers this week.

News ID: ۷۸۶۵۲۲

27 June 2021

One credit institution was the sole buyer in the fifth round, according to a press release published on the CBI’s website.

The unnamed institution bought bonds worth 2 trillion rials ($8.5 million), accounting for less than 1% of total offer.

Investors in fixed income assets also stayed away despite the fact that the Economy Ministry raised the yield to 21.29% compared to the 20.82% in the second round.

Government income through bond sale was zero in the past two weeks with literally no buyers. Stock market investors made a tiny contribution to the bond sale in May and did not partake in the past four auctions. The next auction will be held on June 29 with 220 trillion rials ($935m) on offer, the CBI said.

The Economy Ministry says the bond sale is to help meet pressing budgetary needs and is in line with the budget law.

With the bond market unappealing to buyers for extended periods, the government is facing a quandary in its efforts to raise funds for spending.

It will have to either increase the yield to encourage buyers or print money as the budget deficit grows, according to the Persian-language economic newspaper Donya-e-Eqtesad.

The latter option will inevitably give rise to inflation already among the highest in the world. The former alternative may run the risk of harming parallel asset markets, namely the stock market that has been declining since last summer.

For now the outgoing Rouhani administration opted for the bond policy to plug its deepening budget holes instead of borrowing from the CBI that over the years produced galloping inflation with consumer prices going through the roof.

The initiative to hold bond auctions was launched in May 2020 when banks, investment funds and stock market investors were asked to take part. Last year the government held 42 bond auctions lasting until the end of the fiscal year in March, and generated 1,257 trillion rials ($5.4 billion).