After weeks of dull trade Iran's debt market saw renewed interest for government bonds. On Tuesday it sold bonds worth 54.7 trillion rials ($210 million) at the weekly auction held by the Central Bank of Iran, the CBI said in a press release.
The sale was the highest in the past eight weeks as the CBI on average sold 4 trillion rials ($16 million) in bonds in eight weeks.
Starting in May, the auctions are held to raise funds to help the government plug its budget deficits. In dire need of new sources of funding, the government had failed to find buyers for its debt over two months.
Buyers were initially banks and investment funds but later the Ministry of Economy extended the bond trade to stock market to enable retail and institutional investors to take part.
This week the buyers were three banks that put in bids worth 20.9 trillion rials ($80m). Investors at the bourse and out of the auction bought nearly 33.7 trillion rials of bonds, 23.6 trillion of which was bought by institutional investors.
Yields this time varied from 20.5% to 21.5% and the highest yields were offered for the longest maturity. In bid to encourage the participation of investors, the Economy Ministry earlier in the month allowed equity market investors to buy bonds throughout the trading week.
Prior to that investors could buy bonds only one day in a week, usually Tuesdays when the weekly auctions are held.
So far the Rouhani administration has generated 780 trillion rials ($3 billion) in 26 auctions and experts say it needs to sell at least 500 trillion rials in the weeks before the fiscal year is out in March.
CBI Monetary Policy
Decline in bond sale could hamper CBI efforts to implement the open market operation -- the highly touted monetary policy that demands banks hold sufficient bonds.
OMO is a financial instrument through which central banks buy and sell government bonds in the open market to regulate the supply of money. The objective of OMOs is to manipulate the short-term interest rate. As per the mechanism banks in need of liquidity offer bonds as collateral to borrow from the CBI.
The CBI announced the new monetary policy in January and has asked banks to buy bonds to be eligible to borrow.
The Money and Credit Council, the top monetary decision-making body, in August obliged banks to allocate at least 3% of their financial resources to buy bonds.
