Data from recent weekly bond auctions show increasing aversion of investors to buy bonds offered by the government, apparently due to the low returns compared to parallel markets.
Struggling to raise money to shore up its deleting finances, the government launched a series of auctions in May to sell Islamic bonds to banks, investment companies and investors.
On Tuesday it managed to sell only 3.3 trillion rials ($11 million) in bonds out of a total of 67 trillion rials ($220 million) on offer.
A bank was the sole buyer and bought 1.9 trillion rials. The remaining was bought by retail and institutional investors in the stock market outside the auction process.
In the last week’s auction there were no bids by banks and non-bank financial institutions both at the interbank platform and the stock market.
Bond sales declined sharply from an average 40 trillion rials ($135m) to 7.1 trillion on Sept. 22. It further reduced to 6.7 trillion rials on Sept. 29.
Facing tough challenges due to the illegal US sanctions and the Covid-economy, the government has pinned high hopes on the debt market. The fading interest of investors in bonds is more disturbing news for the treasury long saddled with rising expenses and declining revenue.
There are also concerns that the government may again approach the central bank, which runs the risk of expanding the monetary base.
Earlier, the Central Bank of Iran hailed the auction decision to plug the budget holes and discourage the government from over borrowing from the CBI. Pointing to the bond revenue, the regulator said it “has gone a long way in avoiding [extra] money printing to finance the budget”.
Targets Fall Short
Analysis of the Persian-language economic newspaper, Donya-e-Eqtesad show to meet budget needs, the government should have sold 200 trillion rials ($670 million) in bonds in the past three weeks. This is while it could not generate more than 17 trillion rials.
“At the minimum, the government needs to sell 50 trillion rials every week,” the newspaper wrote. It pointed to high inflation expectation and unattractive yields on bonds as the main factors contributing to the lack of interest in the auctions.
Since the auctions started in May, bond yields rose at a steady pace in the first 10 of auctions, but the ascending order came to a sudden halt soon. The 15% yield in the first auction rose to 21% in the tenth offer for three-year maturity. The rate since then has remained unchanged.
Decline in investment in fixed-income assets could be attributed also to the steep volatility in financial markets that has rendered long-term propects risky.
The unprecedented rise since March of the dollar -- one of the main drivers of inflation in Iran -- has hurt the bourse as nervous investors turn to safe havens to protect their life savings.
The Economy Ministry says that government has so far sold 970.89 trillion rials ($3.23b) in bonds to shore up its finances in the March 2019-20 budget.
Accordingly, the budget is being funded with 260.7 trillion rials ($870 million) in treasury bills. Bond sales via weekly auctions have generated 710.19 trillion rials ($2.34b).
