Capital Market Investors Sole Buyers of Gov’t Bonds

EghtesadOnline: Capital market investors were the sole buyers of government bond during the weekly auction held by the Central Bank of Iran.

News ID: ۷۸۶۹۳۳

04 September 2021

Retail and institutional investors bought bonds worth 18.5 trillion rials ($69 million) through stock market trade platforms, according to a CBU press release

Once the main buyers of government bonds, banks and credit institutions stayed away for the second week in a row.

Banks refusal to buy debt came despite the fact that as per rules passed by the Money and Credit Council, the top monetary decision-making body, the lenders are obliged to allocate at least 3% of their financial resources to government bonds.

To plug its ballooning deficit  the government started selling Islamic bonds in May of last year. Unlike an acceptable performance then, the Economy Ministry has failed to attract investors to the debt market, raising further inflation fears emanating from the government’s high deficit spending.

Investors didn’t welcome bonds for several weeks for reasons such as low yields and long maturity dates plus “buyers troubles to cash the securities in the secondary market,” according to the CBI.

Earlier in the week, Akbar Komijani, the CBI boss, underscored the need to make the debt market attractive to investors. He expressed concern about methods of funding the government’s spending and stressed the need to sell debt to compensate for budget deficit.

Komijani is of the opinion that the government should change its approach to budgetary needs and better ways and means should be employed to attract bond buyers.

“Under the present conditions, the government needs to raise yields, diversify bonds and maturity dates, and employ market markers [to boost liquidity of securities at the secondary market], he said earlier in the week.

The maximum yield the Economy Ministry has so far offered on bonds is 22% for maturity dates in 2023. This is not attractive for investors of fixed income bonds in an economy saddled with 50% inflation.

Government income from 14 rounds of bond auctions was around 185 trillion rials ($680m) -- not enough to cover this year’s deficit estimated to be between 3,000 trillion rials to 4,000 trillion rials ($11 billion-$15 billion).

The CBI has said 118 trillion rials ($437 million) in new debt would be offered in the next auction on Sept.7.

Opening a primary interbank market for bond auctions is a CBI initiative launched in mid-2020 to raise funds for budgetary needs of the government as it struggles with bigger deficits due to US sanctions on oil exports -- the lifeline of the economy.