Iran’s government bond market has hit a new and worrying threshold, with yields climbing above 38%—a level typically associated with deep fiscal stress or entrenched inflation.
The rise in sovereign yields, considered the clearest gauge of macroeconomic expectations, reflects mounting concern over Iran’s budget deficit, inflation outlook and overall policy direction.
As the economy’s risk-free benchmark, government bond yields influence pricing across all financial markets. Their steady climb is the product of several years of elevated inflation expectations, persistent uncertainty and a widening fiscal gap that has pushed the government to rely more heavily on debt issuance.
Long-term trends show how structural pressures have built up: after the 2015 nuclear deal, yields averaged above 30%, later falling near 15% during brief periods of policy-induced optimism. But from 2020 onward, rapid monetary expansion, currency volatility, rising budget needs and continuous debt issuance pushed yields through the 25% and 30% thresholds.
Crossing 38% marks a new phase. Fiscal pressures have intensified as current expenditures grow, revenues lag and past obligations accumulate.
With limited room to draw on oil income or expand the tax base, the government has increasingly turned to the bond market. Yet higher supply requires higher compensation for investors, and yields have risen accordingly—raising the cost of borrowing to levels that risk locking the state into a more expensive debt cycle.
The economic consequences are already visible. A 38% risk-free return reduces the appeal of equities and has contributed to weaker trading activity on the stock market.
It also lifts borrowing costs across the financial system, squeezing companies, discouraging investment and tightening credit conditions in the real economy. For many market participants, the new yield level signals expectations of persistent inflation and higher macroeconomic risk.
Whether yields can retreat depends on several factors. Fiscal consolidation through expenditure reform and more stable revenue generation could ease pressures.
A steadier exchange rate and reduced uncertainty would help anchor expectations. If high deficits and economic ambiguity persist, however, elevated yields may become a lasting feature of Iran’s debt market.
