The Economy Ministry has no plans to raise bond yields to make the bond market attractive, the managing director of the Securities and Exchange Organization said.
Mohammad Ali Dehqan-Dehnavi said the ministry wants to control the returns and maintain it at present levels, the Securities and Exchange News Agency reported.
“There is no plan for raising the rates and investors’ concern in this regard is not justified,” Dehqan-Dehnavi said.
The Central Bank of Iran complained earlier that low yields and long maturity dates were undermining the bond market and keeping investors away from auctions to sell government bonds to plug the unending budget deficits.
Investors didn’t buy bonds for several weeks as investment in fixed income assets was not alluring enough. The Economy Ministry in recent weeks readjusted bond trade conditions to attract buyers.
Dehqan-Dehnavi said the Economy Ministry is trying to shorten the maturity dates to make the market attractive.
“Changing maturity dates is the only solution [for now] to make the bond market attractive. There is no need to raise the rates,” he said, citing meetings with the Economy Minister Ehsan Khandouzi.
To sweeten the bond market, the government shortened maturity dates in the past two auctions. The maximum yield the Economy Ministry had offered prior to that was 21% for 3-year maturities.
In the last auction in mid-September, the ministry agreed to pay 20.7% to banks and 21% to stock market investors for bonds maturing Sept. 2022. The government scrapped bonds with longer maturities this week.
Stock market investors are concerned that high yields on bonds cause liquidity outflow from the share market to fixed income assets.
Dehqan-Dehnavi earlier called on the central bank to regulate bond rates to levels that don’t hurt the bourse and the appeal of investors.
Other Concerns
Investors are also concerned about increase in interbank rates and its detrimental impact on share market. Interbank rates soared again this week for the seventh consecutive week log 19.47%.
The CBI is implementing expansionary monetary measures to curb rates. The steady increase in rates is the outcome of unprecedented liquidity crunch of banks in the interbank market despite CBI efforts to tame the uptrend by enforcing the expansionary policy.
Data compiled by the Persian-language economic website Eqtesad News show the CBI injected 358 trillion rials ($1.3 billion) in the interbank market in recent weeks under the open market operations.
Within OMO framework, lenders borrow credit from the CBI under the so-called structured interbank lending, which refers to a process through which banks put up bonds as collateral with the CBI to borrow money.
Financial market experts say the higher rates undermine the production sector in the long-term and will discourage investment in asset markets, the stock market in particular.
The highly volatile interbank rates in the last fiscal year was partly blamed for the historic stock market collapse in summer 2020, when the Tehran Stock Exchange lost nearly half its value and has not yet recovered.
