Government bonds were bought this week again by institutional investors as banks and credit institutions kept their distance.
Bond auctions are held by the Central Bank of Iran on behalf of the Economy Ministry to raise funds for the government’s deficit spending.
A report seen on the Economy Ministry's news website said debt barely worth 5.5 trillion rials ($11.4 million) were bought on Wednesday.
Banks and credit institutions did not show up at the 42nd auction. The shortest maturity date for the new debt was May 2023 at 25.7%.
Banks mostly prefer short-term debt with lower yields while institutional investors are more inclined towards long-term debt with higher yields.
According to a CBI report, bonds worth 37.4 trillion rials ($71.2 million) were sold during the 41st auction. Two banks and credit institutions purchased a meager portion reaching no more than 600 billion rials ($1.1 million). Institutional then investors took 36.8 trillion rials ($70 million).
The Economy Ministry will hold the next auction on March 12 to offer new debt maturing March 2024.
Bond auctions started in May 2020 when banks and investment funds were instructed by the CBI to allocate a part of their resources to this end. Later, institutional investors and retail traders in the stock market joined.
According to ministry data, 704.1 trillion rials ($1.46 billion) bonds have been sold since last March. In addition to bonds, the government has sold treasury bills worth 350 trillion rials ($729m) during the period. Treasury bills are underwritten and given to contractors in lieu of unpaid bills.
Per ministry data, banks and credit institutions accounted for 67% of the total bonds sold since the beginning of fiscal 2022-23 while the rest was taken by institutional investors in the bourse.
In the last fiscal year that ended March 2022 the CBI held 36 auctions generating 906 trillion rials ($3b) down 27% from the year before.
Debt this time around is being offered in line with provisions of the 2022-23 budget in which the government can offer 860 trillion rials ($2.8b).
The ministry said recently that it paid the principal and interest on bonds worth 1,681 trillion rials ($3.5 billion) until February 22. More than 1,254 trillion rials ($2.6b) was the principal and 409 trillion rials ($887m) interest -- it being over and above government income from new debt offered during the period.
More Bonds Next Year
The government can raise up to 2,000 trillion rials ($4.65 billion) from bonds based on the proposed 2023-24 budget, as approved by the Majlis.
Parliament has also allowed allocation of 1,750 trillion rials ($4.069 trillion) for the settlement of government debt until March. It approved a proposal in the proposed budget allowing state-owned banks to issue 500 trillion rials ($1.6b) bonds in the coming year. The bonds will mature in five years and the government guarantees the principal and interest.
Allowing lenders to issue bonds gives them leeway to secure funds when facing a liquidity crunch. When in dire need of liquidity, lenders usually borrow from each other via the interbank market or CBI.
Moreover, lawmakers allowed state companies to issue bonds to the tune of 1,000 trillion rials ($2.325b).
President Ebrahim Raisi submitted the March 2023-24 budget to parliament on January 11. The highlights of the proposed budget include 19,840 trillion rials ($49.6 billion) as operating budget (including revenue mainly from tax and export tariffs) plus 1,800 trillion rials ($4.5 billion) for ministries and government institutions.
The budget of state companies, banks and for-profit organizations has been proposed at 30,976 trillion rials ($77.4 billion).The ceiling for the total budget is 52,616 trillion rials ($131.54 billion).
