The government sold bonds worth 48.8 trillion rials ($195 million) at an auction on Tuesday – a sizable growth compared to previous auctions.
It was the highest weekly sale since Sept. 8 and a whopping 240% growth compared to previous week when the government generated 14.8 trillion rials ($58m).
This week's auction, however, saw a decline in the contribution of banks and investment funds and an increasing share of security underwriters.
Five banks bought bonds worth 11.5 trillion rials ($46m) in the interbank market. Outside the auction process, retail and institutional traders bought a total 2.5 trillion rials at the stock market, according to data published on the Central Bank of Iran website.
The biggest buyers were bond underwriters who purchased 35 trillion rials ($140m) representing 71% of the total sale. Yields varied from 20.5% to 21.5% with two-year and three-year maturities.
Starting since May, the bond auction is a government initiative held every week by the CBI to help plug its deepening budget deficits.
Bond auctions were relatively successful in the first several rounds, but plunged sharply with the start of autumn. The government sold bonds worth 145 trillion rials ($580 million) at the weekly auctions in the third quarter the current fiscal year (Sept. 22-Dec. 20).
Despite the recent growth, the Q3 bond sale was comparably lower and almost a fourth of the total sold in the June-Sept. quarter. As per data seen on the CBI website, the government earned 586 trillion rials ($2.3 billion) in summer, accounting for 70% of the total.
Data indicate that the government was barely able to generate 18 trillion rials ($70m) from bonds in the first seven weeks of autumn. Prior to that, average weekly sale was 40 trillion rials ($150m).
At that time low yield on bonds in tandem with high inflation expectations amid steep volatility in the forex and gold markets were seen as the main reasons behind the aversion to invest in fixed income assets.
Now with a semblance of stability in financial markets, investors have apparently shown interest in bonds in recent weeks, though the average sale is far from its apex in summer.
The government has so far earned 880 trillion rials ($3.5b) from 30 auctions. Inquiries by the Persian-language economic website eghtesadnews suggest the total budget deficit is near 1,200 trillion rial ($4.8b). The government intends to fund its budgetary needs worth 360 trillion rials from selling debt -- sell at least 30 trillion rials every week before the current fiscal year is out in March.
Bond auctions are strongly supported by the CBI due to its reported positive impact on monetary variables and contribution to CBI monetary policy.
Bond sale has reportedly helped cover the budget deficit to a considerable degree and avoid borrowing from the CBI that in the past fueled inflation by increasing the monetary base.
Banks also have asked for holding enough bonds to be able to operate in the interbank market and borrow from the CBI under the newly launched open market operation policy.
The CBI has asked banks to buy bonds to be eligible to borrow. The Money and Credit Council, the top monetary decision-making body, has obliged lenders to allocate at least 3% of their financial resources to buy bonds.
