Bank of Uganda attracts record bids in oversubscribed Treasury Bill auction

The Bank of Uganda’s latest Treasury Bill auction drew strong investor appetite on Wednesday, with bids far exceeding the Shs75 billion on offer, underscoring heightened demand for government securities in a tightening liquidity environment.

According to official results, investors tendered a total of Shs590.1 billion across the 91-day, 182-day, and 364-day papers, against the Shs75 billion offered. Accepted bids amounted to Shs376.7 billion, reflecting a robust bid-to-cover ratio of 7.6 for the shortest tenor and 2.1 for the one-year paper, highlighting competition particularly for the short-term instruments.

Yields edged higher across all maturities. The cut-off price for the 91-day T-bill translated into an effective yield of 12.0 percent, while the 182-day and 364-day bills cleared at 13.2 percent and 15.25 percent respectively. Analysts say the upward movement in rates reflects both rising government borrowing needs and investor expectations of elevated inflationary pressures through year-end.

“The oversubscription signals that investors are seeking safe, short-term instruments amid tightening liquidity in the interbank market,” said a fixed income trader at a leading commercial bank. “At the same time, the higher yields show that investors are demanding more compensation for holding government paper, especially longer-dated bills.”

The central bank has been leaning on domestic borrowing through Treasury Bills and Bonds to finance part of the fiscal deficit, a strategy that has expanded the stock of domestic debt but provided stable returns for banks, pension funds, and offshore investors.

Market watchers caution, however, that persistently high yields could raise government borrowing costs and crowd out private sector credit. “The challenge is balancing the financing needs of the budget with maintaining affordable rates for businesses seeking loans,” noted an economist at Makerere University Business School.

Uganda’s money market rates have been climbing in recent months, driven by strong domestic demand for liquidity, high government financing requirements, and cautious monetary policy amid inflation risks. The central bank’s next auction is expected to gauge whether this upward trend in yields will persist into the fourth quarter.

For now, investors are likely to continue piling into government paper, reassured by its low-risk profile and attractive returns in a market where alternative investment options remain limited.