Banks and credit institutions again refused to buy government bonds at the weekly auction on Tuesday while retail and institutional investors in the stock market too remain averse.
Investors bought 5 trillion rials ($20 million) in bonds out of a total of 180 trillion rials ($700m) on offer. The auction will be repeated next week when the new government will try to sell debt worth 170 trillion rials ($655m), the website of the Central Bank of Iran said.
To plug its ballooning deficit holes the government started selling Islamic bonds in May via weekly auctions held by the CBI. Unlike the enthusiasm last year, the Economy Ministry has failed to attract investors to the debt market, raising inflation fears emanating from the government’s tight budget and ever-increasing spending.
Analysis by the Persian-language economic website Eqtesad News show government income from 11 bond auctions was around 80 trillion rials ($310 million) -- way lower than its initial predication to sell 1,250 trillion rials ($4.8b) by the time the current fiscal year is out in March 2022.
To reach that target the government needs to sell 37 trillion rials ($145m) in bonds each week, which is a tall order given the investors conspicuous unwillingness to invest in fixed income assets.
On reasons why the bond market fell by the wayside, the CBI blames the “low yields and long maturity dates.” Moreover, it says “buyers of the bonds often have trouble cashing the securities in the secondary market.”
The maximum yield the Economy Ministry has so far offered has been less than 22% for bonds that mature in 2023.
Given the mounting economic ills, long maturity dates combined with unattractive yields do not draw the attention of investors of fixed income assets when the economy is saddled with 45% inflation. It is largely believed that inflation is much higher and could get worse before it gets better.
