The upsurge is apparently linked to the increase in yield the government is willing to pay on bonds. In Tuesday’s auction, the Economy Ministry agreed to pay yields subject to maturity dates. The highest was 19.2% for bonds that mature in August 2023.
Value of bonds sold at this yield stood at 29.9 trillion rials, or for 37% of the total bonds sold for the day, indicating that bonds at this rate were more attractive than those with lower yields but with shorter maturity dates.
The government sold 10.9 trillion rials in bonds with two-year maturity at 17.4%. Buyers also bought 21.9 trillion rials worth of three-year maturity bonds at 18.2%.
The remaining was sold to institutional and retail investors in the share market and outside the CBI’s auction, according to results of the seventh auction released by the Central Bank of Iran on its website.
A glance into the seven bond auctions visibly shows that the Economy Ministry apparently has a strong appetite for raising the yields to be able to sell more bonds.
The recent bond auction pattern shows the yield was 15% in the first auction that mature in 2023, rising to 18.2% in the previous auction and 19.2% on yesterday (July 14).
Bond sale in phases is underway since May to raise funds for the government’s spending amid the deep decline in revenues and the omnipresent budget deficits. CBI hosts the auctions every Tuesday.
As per an earlier announcement, the government this time offered Murabaha bonds worth 110 trillion rials ($480 million).
17 Bidders
Seventeen entities, including banks, investment funds and non-bank institutions put in bids for 103 trillion rials of the offered bonds. The Economy Ministry accepted 79 trillion rials.
As per auction procedures, banks and non-bank financial entities’ bids are processed by a CBI brokerage and sent to the Economy Ministry for approval.
The CBI said it will hold the next auction worth 69 trillion rials ($300 million) on July 21.
The government has sold 362 trillion rials ($1.5 billion) in auctions so far. Raising funds through the debt market is critical for the government saddled with deep budget deficits that is getting deeper for a whole set of reasons, not to mention the budgetary crisis, falling revenues, rising expenditure, US economic sanctions, mismanagement and Covid-19.
Economists say funding budget deficits via the bond market is a lesser evil than the government borrowing from the central bank. Overborrowing also means printing more money, running the risk of increasing the monetary base and galloping inflation.
The monetary base increased 8.8% by the end of the first quarter of the current fiscal year on June 21 to reach 3,834.7 trillion rials ($16.6 billion).
Citing monetary and banking sources, the Persian-language economic newspaper Donya-e-Eqtesad said the government needs to sell at least 50 trillion rials in bonds every week to avoid overloading the monetary base.