The government sold bonds worth 145 trillion rials ($580 million) at the weekly auctions in the third quarter the current fiscal year (Sept. 22-Dec. 20).
Despite growth in earnings from the debt market in the past four weeks, the Q3 bond sale was comparably lower and almost a fourth of the total sold in the June-Sept. quarter.
Auctions are held every week by the Central Bank of Iran since May to help the government plug its budget holes. As per auction data seen on the CBI website, the government earned 586 trillion rials ($2.3b) in bonds in summer. The Q2 bond sale accounted for 70% of the total.
Down in Autumn
Despite success in the first several rounds, bond sales plunged sharply with the start of autumn. Data indicate that the government was barely able to generate 18 trillion rials from bonds in the first seven weeks of autumn. Prior to that, average weekly sale was 40 trillion rials ($140m).
That period coincided with steep volatility in the forex and gold markets and uncertainty about the future. Volatility in asset markets had increased inflation expectation, which observers say, made investment in fixed income assets unattractive.
With a semblance of stability in financial markets, investors have apparently showed interest in bonds in the past four weeks, though the average sale is far from its apex in summer.
Latest Auction
During the 29th auction this week, bonds worth 14.7 trillion rials ($59m) were sold. Three banks put in bids for 11.7 trillion rials. Investors at the bourse and out of the auction bought nearly three 3 trillion rials. Yields varied from 20.54% to 21.5% with two-year and three-year maturities.
Bond auctions are strongly supported by the CBI given its positive impact on monetary variables and its contribution to the implementation of CBI monetary policy.
Bond sale has reportedly helped cover the budget deficit to a considerable extent and avoid the need to borrow from the CBI that in the past fueled inflation by increasing monetary base.
Banks also have asked for hold enough bonds to be able to operate in the interbank market and borrow from the CBI under the newly launched open market operation monetary policy.
The CBI has asked banks to buy bonds to be eligible to borrow. The Money and Credit Council, the top monetary decision-making body, has obliged banks to allocate at least 3% of their financial resources to bonds.
