Two and a half weeks after the Bank of Uganda, along with the Treasury Department, rejected highly placed long-term treasury bond bids in last month’s auction—despite significant oversubscription of close to 1.4 trillion UGX—the Bank of Uganda is back with the May auction, as per the scheduled calendar. On May 14th, 2025, there will be an auction of three bonds that are being reopened.
The three-year bond, which has a withholding tax of 20%, offers a coupon rate of 14.125% and will pay its next coupon on July 17th, 2025. This is a short to medium-term bond for those who want to invest for just a few years; it matures in 2028, making it an attractive option for investors looking for a short-term investment while they study market dynamics. Currently, we are beginning to factor in the political risk in the country into our investment decisions.
The Bank of Uganda will also auction off the 10-year bond, which has a withholding tax of 10% and a coupon rate of 14.25%. This bond will pay its next coupon on July 3rd, 2025, and is considered a long-term bond as it matures in 2034. It is one of the bonds currently trading at a discount due to its long-term nature and the coupon rate it offers in the market.
Additionally, the Bank will auction one of the people’s favorites: the 20-year treasury bond, which offers a 15% coupon rate and a withholding tax of 10%.
This auction comes at a pivotal moment as we observe whether the government of Uganda and the Bank of Uganda will maintain their stance against allowing interest rates and yields—especially on long-term bonds—to rise beyond unsustainable levels.
This was evident in last month’s auction in April 2025, where they cut off the yield for the 15-year bond at just 17%. There were significant rejections of market makers’ bids, indicating that the majority of competitive bidders and market makers may have priced in a highly unattractive real yield of potentially 17%, 18%, or 19%.
Consequently, the government and the Bank of Uganda had no choice but to reject those bids to ensure that interest rates and yields remain within acceptable levels, even though a 17% yield is still on the high end of what we would consider a strained market.
Investors are closely studying the market to gauge what the upcoming 20-year bond will look like, particularly how market makers will price it in the primary market. This is especially relevant given that, in the secondary market, the 20-year bond is trading at around 17.4% to 17.7%, particularly if the bank is the buyer. If the banks, especially the primary banks that act as market makers, are already factoring this in, we are eager to see how the May auction will unfold.
Interestingly, we should not overlook the growing retail market; in the last auction, we had over 31 billion UGX bid for the total bonds. We are keen to see how this month will play out, as we continue to observe an increasing population interested in these investment products. For those looking to invest, now is the time to start filling out your forms, take them to your bank, and be ready to invest.
Editor’s Note :The writer is a financial markets expert
