The government sold 30.8 trillion rials ($120 million) in Islamic bonds via the interbank and stock market during the weekly auction on Tuesday.
According to the central bank’s public relations office, bidders were four banks and three investment funds who put in bids worth 29.3 trillion rials ($117m). The Economy Ministry accepted bids worth 29.2 trillion rials.
Bonds were offered at varying yields, the highest being 21%. Only five trillion rials were sold at this rate. About 9.6 trillion rials in bonds were sold at 19% and 14.5 trillion rials at 20%.
The share of retail and institutional buyers in the equity market as meager this time around as they bought only 1.6 trillion rials of bonds outside of CBI auction. They had bought 8.5 trillion rials last week.
As per rules, bids by banks and non-bank financial entities are processed by a brokerage affiliated to the Central Bank of Iran and sent to the Economy Ministry for approval.
The CBI said it will hold the next auction on Sept 22 and offer 52 trillion rials ($208 million) worth of bonds.
In the 16 auctions since June, the government has sold 700 trillion rials ($2.8 billion) in Islamic bonds at an average 18.16%. The yield rose from an average 15.57% in the first auction to 20.16% in the last auction. Approximately 61% of bonds have been sold in the money market to lenders and the rest to buyers in the bourse.
The auctions are intended to raise funds for government spending amid the steep decline in revenues and the perennial budget deficits.
Economists say funding budget deficits via the bond market is a “lesser evil” than the government borrowing from the central bank. Over borrowing also means printing more money, running the risk of increasing the monetary base and galloping inflation.
The CBI supports the bond auctions for funding budget deficits and preventing the government from over borrowing from the CBI.
The Money and Credit Council, the top monetary decision-making body, last month obliged banks to allocate at least 3% of their financial resources to buy the bonds.
