On March 18, 2026, the Bank of Uganda will auction four treasury bonds. This auction will be one of the last in the 25/26 financial year, with only three more auctions scheduled in April, May, and June to close out the year.
For those who monitor the auction calendar, this event is particularly important because it will feature the 2-year, 5-year, 15-year, and 25-year bonds. This will be the third time all four bonds are auctioned simultaneously in the primary market, the last occurrence being in November 2025.
Recent auctions have seen a significant drop in interest rates and yields, especially for long-term bonds. This trend will be crucial to watch as investors decide whether to buy bonds at a premium or a discount.
Looking back at previous auctions, on January 22, 2026, the Bank of Uganda auctioned three bonds, including the 15-year bond, which yielded 16.475%, a notable decline from the November highs. The five-year bond attracted a 7% premium, while the two-year bond yielded 15.1% with a slight discount.
The 25-year bond, last auctioned on November 27, 2025, yielded 17.95%, with buyers enjoying nearly a 6% discount. However, interest rates have since dropped sharply, influenced by the conclusion of the election period and the Ministry of Finance’s efforts to reduce borrowing costs. The government found borrowing expensive in 2025 and is now aggressively working to lower interest rates in 2026.
Given the current market conditions, the 25-year bond will be a focal point. It carries a coupon rate of 16%, the second highest after the 10-year bond at 16.25%. The 15-year bond has a coupon rate of 15.8%. High coupon rates typically affect whether bonds trade at a premium or discount.
In the secondary market, the 25-year bond is trading between 15.5% and 16%. If the auction yield falls to 15.5%, buyers will pay a premium of about 5%, which can be offset by coupon payments starting in August. If the yield is closer to 16%, the premium drops to around 2%. To avoid paying any premium, the yield would need to be at least 16.25%, allowing investors to purchase the bond at par value.
The 25-year bond recently paid a coupon on February 15, 2026, so accrued interest is minimal. The key factors influencing the auction will be the coupon rate and the yield to maturity. Investors hoping to avoid premiums should aim for a yield above 16%.
Similarly, the 15-year bond, with a coupon rate of 15.8%, is trading between 15.2% and 15.5% in the secondary market. This means buyers will likely pay a premium unless the auction yield rises to about 16.4%, which is unlikely given recent trends.
For investors seeking the best returns, the 25-year bond presents the most attractive opportunity, potentially offering the highest yield or the smallest premium. The 15-year bond is also a viable option but carries a higher likelihood of premium payments.
Tax planning
It is important to note that the two-year and five-year bonds come with a 20% withholding tax, making them less attractive compared to the 10% tax on the 15-year and 25-year bonds. Additionally, the longer-term bonds generally offer better yields to maturity. Investors who want to avoid paying premiums might consider waiting for auction results before purchasing bonds on the secondary market or through commercial banks.
Interest rates are declining rapidly as the Bank of Uganda strives to reduce borrowing costs.
Meanwhile, the Ugandan shilling has depreciated against the US dollar, moving from around 3,500 UGX to nearly 3,700 UGX in just five days, influenced by global geopolitical tensions and supply chain disruptions. This auction on March 18 will be closely watched. For those looking to maximize returns, the 25-year bond is likely the best choice, although market dynamics can always shift unexpectedly.
