25-year treasury bond draws Shs1.27 trillion bids as investor appetite shoots up

Government’s 25-year Treasury bond attracted the strongest investor demand in the latest Bank of Uganda (BoU) auction, with bids worth Shs1.27 trillion submitted against Shs350 billion on offer.

The September 23 auction saw investors submit a combined Shs2.6 trillion for the four government securities, including two-year, five-year, 15-year and 25-year Treasury bonds.

The strong appetite for the longest-dated security saw BoU accept Shs1.036 trillion, significantly above the Shs350 billion that had initially been offered.

The 25-year bond, which matures on July 7, 2050, was issued at a yield of 16.25 per cent. Its bid-to-cover ratio stood at 1.228, according to the auction results.

The five-year bond attracted the highest bid-to-cover ratio, with investors submitting Shs534.78 billion against accepted bids of Shs35.71 billion, giving a ratio of 14.975.

BoU accepted Shs35.71 billion on the five-year security, against Shs350 billion offered, at a cut-off yield of 13.74 per cent.

The two-year Treasury bond, maturing in November 2028, attracted Shs304.63 billion in bids. BoU accepted Shs39.38 billion at a cut-off yield of 12 per cent.

The 15-year bond, a new issue maturing in September 2041, attracted Shs487.61 billion in bids, with Shs89.36 billion accepted at a yield of 15.25 per cent.

Overall, the central bank accepted about Shs1.2 trillion across the four securities, compared with Shs1.4 trillion initially offered.

The auction results point to continued investor interest in government securities, particularly longer-term instruments that offer higher yields.

The 25-year bond carried the highest yield at 16.25 per cent, followed by the 15-year bond at 15.25 per cent, the five-year bond at 13.74 per cent and the two-year bond at 12 per cent.

The latest auction comes as government continues to rely on the domestic debt market to finance its budget requirements and refinance maturing obligations.

For investors, Treasury bonds provide an avenue to lock in returns over longer periods, while government uses the securities to raise funds from the domestic financial market.

The latest results also show a wide difference in demand between the shorter and longer-term securities. While the five-year bond attracted nearly 15 times the value of bids ultimately accepted, the 25-year bond received the largest absolute value of bids and had more than Shs1 trillion accepted.

The auction was conducted on September 23, with settlement scheduled for September 24, according to BoU