• Business And Markets

    Investors in Iran Buy Bonds Worth $2.2 Billion in Ten Auctions

    The Iranian government so far has generated 500 trillion rials ($2.2 billion) from Islamic bonds in ten weekly auctions held by the Central Bank of Iran every Tuesday since early June.  

    The auctions are intended to raise funds for government spending amid deep declines in national revenue and the perennial budget deficits. 

    In a press release published on the its website, the CBI said banks were the main purchasers of the bonds and bought 361 trillion rials (1.5 billion), accounting for 72.4% of the total bond sale. 

    After banks, retail and institutional investors in the stock market were buyers of bonds worth 112 trillion rials, or 22.5% of the total. Finally investment companies bought bonds valued at 25 trillion rials. 

    In a statement earlier in the week, the CBI hailed bond auctions in funding budget deficits and preventing 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”.  

    There are plans to issue more bonds in the coming days. Mehdi Banani, head of the Debt Management Department of the Economy Ministry, spoke about a plan to issue 940 trillion rials ($4b) in bonds in the first half of current fiscal year (March-September), 620 trillion rials of which will be for “budget expenses” and the rest as allowed in the budget law. 

    The government has received the go-ahead from the High Council of Economic Coordination to sell this volume of bonds. The council is a body comprising heads of the three branches of power to address macroeconomic issues.

    The official added that Economy Ministry is now responsible for funding 90% of the national budget because oil exports are at historic lows due to the new US economic sanctions unleashed in 2018 after Donald Trump abandoned the 2015 Iran nuclear agreement. 

     

    Latest Auction 

    The government sold a total of 27.8 trillion rials ($120 million) in Islamic bonds in the auction on Tuesday.  As per earlier an announcement, the government had offered two packages of Murabeha bonds with a collective value of 68.5 trillion rials. 

    According to the CBI public relations office, this time nine banks and investment funds put in bids worth 36.8 trillion rials.  The Economy Ministry accepted 14.8 trillion rials ($64.3 million) as the best bids. 

    Retail and institutional investors in the equity market bought the remaining 13 trillion rials ($56.5 million) outside the auction. 

    The Economy Minstry has agreed to pay 20% yield on 22.6 trillion rials worth of bonds that mature in September 2022. Likewise, bonds worth 5.1 trillion rials and three-year maturity were bought at 21% yield.  This is the highest ever yield paid on bonds during the 10 auctions.  

    A glance at past auctions shows that the government has steadily increased the yields. In the first auction buyers bought bonds at 15% with 2023 maturity. The yield went up to 20.9% in the previous auction and the government again increased the yield by 21% in the latest session. 

    As per auction procedures, banks and non-bank financial entities’ bids are processed by a brokerage affiliated with CBI and sent to the Economy Ministry for approval.  

    The central bank will hold the next auction on August 11 and bonds valued at 50 trillion rials ($217 million) will be on offer. 

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