BoU rejects bulk of bids as bond auction draws UGX 2.83 trillion

KAMPALA — Bank of Uganda recorded overwhelming investor demand in its latest treasury bond auction held on Wednesday, March 18, 2026, with the 15-year bond drawing exceptional interest.

The auction, which reopened 2-year, 5-year, 15-year and 25-year tenors, attracted total bids worth UGX 2.83 trillion—nearly double the government’s target of UGX 1.4 trillion, according to results from the Central Securities Depository.

The standout was the 15-year bond (maturing June 2039), which registered an extraordinary subscription rate of 2,897 percent. Despite offering UGX 450 billion, investors submitted bids totaling UGX 598.9 billion.

However, in a move signaling tight price discipline, the central bank accepted only UGX 20.67 billion—just 3.4 percent of the bids—pushing the bid-to-cover ratio to an unusually high 28.9. This underscored fierce competition among institutional investors for long-term government securities.

The 25-year bond also attracted strong demand, with UGX 1.35 trillion in bids against an offer of UGX 350 billion. The government accepted UGX 416 billion, slightly above its initial target to capitalize on investor appetite for long-term instruments.

Attractive yields

Yields remained appealing, particularly in a low-inflation environment:

• 2-year bond: 13.49%
• 5-year bond: 15.00%
• 15-year bond: 15.75%
• 25-year bond: 16.29%

These returns continue to draw investors seeking stable, high-yield opportunities.

Why demand is surging

The strong turnout reflects broader economic trends shaping investor behavior in Uganda.

Low inflation, high real returns
Uganda’s annual headline inflation eased to 2.9% in February 2026, down from 3.2% in January. With bond yields ranging between 13.5% and 16.3%, investors are earning real returns above 10%, making government securities far more attractive than bank deposits or other asset classes.

Oil-driven optimism
Investor confidence is also buoyed by expectations of commercial oil production later this year. With economic growth projected at 6.5% to 7% for FY 2025/26, many investors are locking in high yields now, anticipating that increased government revenues could reduce borrowing needs and push interest rates lower in the future.

Tight debt strategy
The central bank’s decision to reject a large portion of bids—particularly on the 15-year bond—signals a deliberate effort to maintain borrowing costs. By limiting acceptance, the government avoids driving yields higher, reinforcing its stance against borrowing at unfavorable rates despite a growing public debt stock.

Shift to long-term investing
The heavy demand for 15- and 25-year bonds highlights growing confidence in Uganda’s long-term economic outlook. Institutional investors, including pension funds such as National Social Security Fund, are increasingly willing to commit capital for extended periods, reflecting a maturing domestic debt market.