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EghtesadOnline: Islamic bonds worth 61.7 trillion rials ($287 million) were sold during the weekly bond auction on Tuesday. The auctions are in line with the government’s efforts to access funds for fixing its budget deficit.

In a notice the Central Bank of Iran said 43.3 trillion rials ($201m) were bought by lenders and non-bank financial institutions. The CBI hosts the auctions. 

The remaining 18.4 trillion rials in bonds was sold to institutional and retail investors in the stock market and outside of the auction.

In the eight auction of its kind the government offered Murabeha bonds worth 69 trillion rials ($320m).

Bidders included ten banks and nine investment funds that put in bids valued at 65.9 trillion rials. But bids worth 43.3 trillion rials were accepted by the Economy Ministry. 

As per auction procedures, banks and non-bank financial entities’ bids are processed by a CBI brokerage and sent to the Economy Ministry for approval.  The brokerage settles the payment in one working day.  

The CBI said the ninth auction would be held next week. 

Buyers of the bonds are mainly banks, investment funds, insurance companies, government creditors and contractors of urban and other development projects.  

The auctions commenced in May to raise funds for the government spending amid deep decline in national revenues and the omnipresent budget deficits. 

With Tuesday’s bond sale the government so far has generated more than 420 trillion rials ($1.9 billion). 

Pointing to the merits of funding the budget via the debt market, the CBI said “the government will fund its budget via existing resources from the interbank market and prevent the CBI from getting access to ‘high powered money’”.

High-powered money or powerful money is another name for the monetary base. It refers to the total amount of bank notes and coins circulating in the economy, including those in public hands plus currency that is physically held in vaults of commercial banks and lenders’ reserves with the central bank.

 

Yields Edging Up 

The government has considerably increased the yields on bonds to encourage buyers and sell more. The highest bond yield was 19.9 on Tuesday compared to the maximum 19.2% in the previous auctions. Higher yields were offered to bonds with the longest maturities.

The 19.9% yield was offered to bonds that mature in September 2023.  Value of bonds sold at this yield stood at 30.5 trillion rials, accounting for half of the sales and indicating that bonds at this rate were more attractive than those with lower yields but shorter maturity dates. 

The government sold 4.5 trillion rials in bonds with one-year maturity at 17.9%. Buyers also bought 8.3 trillion rials worth of two-year maturity bonds at 18.9%. 

The rest was sold to institutional and retail investors in the bourse and outside the auction. 

A glance at the past eight auctions shows that the government has steadily increased the yields. A 15% yield  in the first auction with 2023 as the maturity date rose to 19.2% in the previous auction and 19.9% in the July 21 auction. 

 

Budget government Bond Auction