Bank of Uganda targets to raise UGX990 billion in first Treasury Bond auction of 2025

The Government, through the Bank of Uganda, will starting January 9,2024, auction three treasury bonds, with a target raise of UGX 990 billion.

The government is increasingly relying on the issuance of treasury bills and bonds to fund its operations amid low revenue collections and reduced donor funding.

One of them is a 2-Year Treasury bond with a coupon rate of 13.5% and WHT of 20% Maturing in July 2026.

The other is 5-Year Treasury bond with a coupon rate of 14.25% and WHT of 10% maturing in August 2029. It last auctioned at a 16% cut off yield in the primary market.

According to Alex Kakande, a financial analyst, the 5-year bond pays a coupon every February and August.

“So investors who already have on their portfolio bonds paying in January and July (The current 20- & 15-year bonds), this 5-year bond might be an attractive option to ladder your bond,” he says.

The government is also issuing a 15-Year Treasury bond with a coupon rate of 15.8% and WHT of 10% maturing in June 2039. The 15 year bond last auctioned off at a cut off yield of 16.75%.

“The bond will pay a coupon on January 9, 2025 on the day of the settlement of the Auction, which means anyone who invests on this day will be investing on Day 0 of the next coupon payment which will take place in July 2025 which makes it a good time to buy the bond at a discount and build accrued interest by holding it for a period,” Kakande says.

“If you want to earn some coupon on January 9, 2025, by investing in the 15-year bond, you will have to buy it on the secondary market and given that it’s about to pay a coupon, it has accumulated significant accrued interest and thus currently trading at a premium across major players,” he adds.

The recently acquired favoured position of bonds has for the most part been galvanized by increased internal government borrowing.

They are used to raise money by corporations and governments with the latter using them to heat check the economy as a monetary policy tool to control inflation. Bonds are viewed as less risky investments because the default risk of governments is close to nothing.