Key Insights Ahead of Uganda's Bond Auction on April 15

Uganda’s bond market is witnessing a strategic push by the Bank of Uganda to reduce government borrowing costs following the January elections. In recent auctions, the central bank rejected most bids to enforce lower yields, accepting only a fraction of offers that exceeded its targets.

For instance, in March, bids totaling Shs598 billion for a 15-year bond resulted in just Shs20 billion being accepted. Similarly, February’s 10-year bond cleared at 14.50%, down sharply from January’s 16.75%, achieved by dismissing higher-rate bids.

This approach leverages Uganda’s low inflation of 2.8% in March, below the 5% target, allowing nominal yields to drop while maintaining attractive real returns of around 12% above inflation.

However, the secondary market reveals a different picture, with the February 10-year bond trading at 15.50% and 20-year bonds at 16.00%, highlighting a 1-1.5 percentage point gap and investor doubts about primary auction pricing.

Financial analyst Kenneth Legesi notes that this discrepancy signals market disagreement, describing secondary trading as the ‘honest conversation’ versus the government’s ‘official version.’

On April 15, three bonds will be auctioned: a 3-year maturing July 2028, 10-year in November 2035, and 20-year in June 2043. Expected cut-off yields are 15.00% for the short-term, 14.75% for 10-year, and 15.60% for 20-year, with bids likely clustering at 14.75-15.25% and 15.25-15.75% respectively.

Analysts anticipate a slight upward adjustment from recent lows, but persistent rejections could widen the primary-secondary divide, underscoring two parallel markets in Uganda’s debt space.

Source: Daily Monitor (Uganda)