Bond auctions are held every Tuesday since May hosted by the Central Bank of Iran. In a notice on its website the bank said 12.6 trillion rials ($55m) were bought by lenders and non-bank financial institutions this time around.
Retail and institutional investors in the bourse bought the remaining 31.5 trillion rials ($136m) outside of CBI’s auction but at the same auction rates.
The government had offered Murabeha bonds valued at 114.7 trillion ($450m) as per an earlier announcement. Bidders included ten banks and investment funds for 73.7 trillion rials ($320m). The Economy Ministry approved the best bids worth 44 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 on August 4 and offer 68.5 trillion rials.
###Yield Rises to 20.9%
Since the auction started in May, bond yields have seen a steady rise. On Tuesday the Economy Ministry agreed to pay up to 20.9%.
Higher yields were offered to bonds with the longest maturities. The government is to pay 20.9% to bonds that mature in October 2023.
Despite the apparent generosity, investors bought 4.4 trillion rials at 20.9%, apparently due to uncertainty over the prospect of macroeconomic variables, such as inflation rate, in the next three years.
The lowest yield so far was 18.9% set for bonds that mature in 2021. Bonds sold at this rate were valued at 30 trillion rials, or 68% of the total sales.
A glance at the past eight auctions shows that the government has steadily increased the yields. A 15% yield in the first auction with 2023 maturity rose to 19.9% in the previous auction and 29.9% this on Tuesday.
The auctions are intended to raise funds for government spending amid deep decline in national revenues and the omnipresent budget deficits.
More to Come
Mehdi Banani, head of the Debt Management Department of the Economy Ministry, spoke about a plan to issue 940 trillion rials ($4b) in bonds in the first half of current fiscal year (March-September), 620 trillion rials of which will be for funding “the inevitable budget expenses” and the rest as allowed in the budget law.
He said the government has received the go-ahead from the High Council of Economic Coordination to sell this volume of bond. The council is a body comprising heads of the three branches of power to address macroeconomic issues.
Buyers of bonds are mainly banks and investment funds. According to Banani, 70% of bonds have so far been bought by private and public banks and the rest by investment funds.
He said the Economy Ministry is now responsible for funding 90% of the national budget because oil exports are at historic lows due to the new US economic sanctions unleashed in 2018 after Donald Trump abandoned the 2015 Iran nuclear agreement.
“The ministry has a package of financial instruments that will be announced subject to circumstances,” the Economy Ministry news agency shada.ir quoted him as saying.
He pointed to tax and customs revenues, selling government assets (property, shares etc.) and issuing bonds as some of ways to help plug budgetary holes.
Apart from bonds, Banani said the government has also issued l 300 trillion rials in treasury bills to settle its mountain of debts.