Today’s Auction results are out; however this article digs deeper and shades light on the Government strategy on raising Funds through Treasury Bonds borrowing.
The Treasury department mishandled its financing projects at the beginning of the month by accepting less money in the bond auction on October 2, 2024, only to return and take more money at a higher price almost 28 days later.
At the beginning of the month, through the Bank of Uganda, the Treasury Department managed to accept only around UGX 640 billion in treasury bonds when they aimed to raise around UGX 1 trillion. This impacted the yields in the market, given that there was a lot of bidding—over UGX 1.7 trillion—and they only managed to accept around UGX 640 billion. Consequently, a lot of money remained in the market, chasing the few deals that had been accepted.
Twenty-eight days later, the same Treasury returned to the market to raise around UGX 990 billion in short to medium-term treasury bond (2 Years, 5 Years and 15 Year bonds) and managed to raise around UGX 1.36 trillion, almost 400 billion above its intended amount.
This increase is really notable on the interest rate front compared to previous auctions. For example, the 15-year bond fetched around a 16.75% interest rate, a 25-basis point increase from the last auction’s 16.5%.
Ideally, the yield of a 15-year bond shouldn’t match that of a 20-year bond in interest rate. However, by initially taking less money at the beginning of the Month, the government had to take more money later in today’s Auction and increase the discount offered at its auction. This caused interest rates to rise, with the 15-year bond now on par with the last 20-year bond, which also brought in 16.75%.
Investors smiling to the Bank
For the investors who participated in this auction, congratulations—the rates are very favorable. All treasury bonds sold were at a discount, and the 15-year treasury bond will soon pay its coupon, On January 9, 2025. Although it is almost selling at 99.6, you are about to recover your money in less than 68 days.
The five-year bond is now trading at 16%, the same as in September when last auctioned, and it is performing strongly, especially given its low tax rate of 10%. Congratulations to those who invested in that.
The two-year bond has jumped to 15.75% with a 20% withholding tax. Compared to previous years when two-year bonds were around 14-15%, the fact that even the two-year bonds are now bringing in above 15.5% is good news for investors. Congratulations to all who managed to invest in this auction.
