Iran’s bond market grew twofold in two years from January 2018 till January 2020, but its real value changed little becaue of high inflation, the Central Securities Depository of Iran said.
Market capitalization, or entire value of the bond market was said to be near 1,200 trillion rials ($7.7 billion) in Jan. 2020, up from 600 trillion rials two years ago.
The figure is expected to rise further given the government’s plan to issue Islamic bonds as part of is budgetary projections, according to a report published on the CSDI website.
The jump in nominal value of the market is ascribed largely to galloping inflation. When adjsuted for inflation, real value of the bond market was 600 trillion rials.
This also is evident in the lower number of deals, which the CSDI said declined by about 50% in the past two years, indicating growing aversion to invest in the bond market.
The visible decline in bond trade is due to the decrease in appeal of fixed income financial instruments mainly due to instability in macro economic variables in the past two years.
Investors reluctuance to approach the debt market could also be explained by the negative returns on investment in bonds in the past two years.
Data released by the Statistical Center of Iran shows the average goods and services Consumer Price Index in the 12-month period ending Jan. 20 increased by 38.6% compared to same time last year.
Low Yields
Most bonds in the debt market bear yields way lower than the annual inflation (usually ranging from 18-23%), which has turned them into a less attractive investment.
Real returns on bond invesmtnt moved into negative territory in the spring of 2018 again due to unbridled inflation resulting from steep volatility in currency rates. The bearish trend has persisted for 20 months.
Iran’s national currency lost nearly 60% of its value against major currencies in summer 2018 after the United States withdrew from the landmark nuclear deal it signed with Iran and world powers and imposed tough new sanctions on Iran.
Iran’s bond market is dominated by the government. A glanace at the composition of the market shows the governmnet holds the lion’s share, representing about 85% of the market. Private companies have indeed failed to keep pace with the government in this sector of the economy.
The CSDI report showed majority of bonds were issued by financial and investment entities and carmakers. Chemical and base metal companies had a meager share.
