Fixed Income Securities: Gateway to Iranian capital markets

Posted on Posted in Business Guidelines

It is not surprising that many international investors, investigating the Iranian market for possible profit opportunities, have become interested in fixed income securities and deposits. The reality of investing in fixed income instruments around the globe has become a frustrating experience since ZIRP and NIRP solutions employed by most influential central banks in the world has pushed yields of fixed income securities to least in history by any measure. Currently, treasuries of some most developed markets are being traded at negative YTM implying that you pay a price to keep the value of your money intact in the future. The irony is that these negative yields of, for example, German and Japanese bonds are in currencies that are under pressure by monetary policy makers to lose their value.

Many institutional and retail investors used to invest in fixed income securities and the market participants are disappointed by very low yields and seeking higher rates of return in equities, emerging markets, or even high risk investment positions such as corporate junk bonds. Thus, as with other investments with higher risk than US treasuries or JGBs, it makes sense for those investors to have a look for Iranian fixed income market, which, at least on the paper, provides both high yields and secured position. That’s why they come and investigate how they could invest in fixed income assets. However, there are risks affecting the real exposure of those investors to those assets as such they might become hesitant at some point.

There are various issues to be considered tangible in real world. One significant issue is a collection of risks embodied in those securities such as country specific risk and exchange risks. It seems that it would take some time until international investors resolve concerns about those risks. The second issue is about the scale of market. The current size of securitized fixed income assets listed by SEO is about USD 3.3 Billion including short term government treasuries, which is too little to be touchable by sound international investors without causing market disturbance. The third issue is related to lack of rating agencies and proper foundation to determine preferred yields. Currently most fixed income assets are traded within very narrow yield boundaries regardless of associated risks.

Taking into account the eagerness of investors to fixed income assets, along with the very potential of attracting capital through those securities, the Iranian market has a way to resolve issues on that matter. However, just like other capital markets around the world, fixed income securities will be the first gateway and also the most accepted path of coming international investment into the capital market.

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