A sweet 17.5% Yield. Today's Treasury Bond Auction results.

March 19, 2025

We are back, and today's auction results are out for the 10-year bond and the 20-year bond, particularly for those of us who are mostly interested in long-term bonds and the three-year bonds.

One notable indicator this time around is that we are seeing interest rates rising again, something we expected, which is primarily driven by the recent parliamentary supplementary budget approval of UGX 4.2 trillion. We were wondering what the impact of that would be in the upcoming auctions and today serves as the first indicator of what that means.

As we can see, the 20-year bond has brought in an effective cutoff yield of 17.5%, the 10-year bond at 17.1%, and the three-year bond at 16.2%. What is even more interesting is that the 10-year bond and the 20-year bond have almost the same Cut off Price, despite having different Coupon rates.

The non-competitive bids in today's auction surpassed UGX 20 billion, which I believe is the first time to have retail investors bidding over UGX 20 billion in one Auction.

Congratulations to everyone who invested in today's treasury bond.

These results are indicative and very promising. For instance, if someone has a UGX 10 million bond at 17.5% for the 20-year bond, they will end up paying only UGX 8.9 million. In three months, by July 2025, as you can see, they will receive UGX 675K . So, in three months, you will be receiving income.

For those of you who bid, if you had placed a UGX 20 million bid, you would end up spending around UGX 17.8 million, effectively getting a discount of approximately UGX 2.3 million.

Another important aspect to pay attention to is what is happening in the secondary market. There is a significant spike in the interest rate, indicating that investors are demanding compensation for the increased risk as the government is borrowing more money.

Last month, the rate was around 17%, and it has come down to 16.8% in the last few weeks. There has been some talk of interest rates decreasing due to a bit of budget consolidation until last week when the parliament passed a 4.2 trillion budget.

This week, they announced that it would be funded mostly by external and domestic borrowing, with around 70% of the supplementary budget being funded from treasury bonds. This means they are looking to raise close to 1 billion U.S. dollars in the next three months, which was unplanned for in June last year, and now the investors and the market have to price it in.

That is why we are seeing such a significant increase in interest rates. What does this mean for you as an investor? I am emphasizing this for investors: this is a buy recommendation. If you have money and missed out on the auction, whether it's UGX 50 million or UGX100 million, go to the secondary market. You can still lock in a very good deal. If you don't know where to go, reach out to me, and I will help you negotiate a good deal.

Regarding the supplementary budget that parliament passed, two things might happen: they may raise this money through standard bidding and the framework they have laid out, or they might opt for a private auction. As you can see, the total accepted bids alone are close to over a trillion, which is literally just 30% of the supplementary budget. You would expect them to seek more, whether through the airport or private placements as we approach May, when they will announce the budget and start the readings.

It is going to be exciting, especially for those who are now investing in this particular opportunity. There is so much to learn and do. If you have some cash flow set aside, this is the best time to start.

In the secondary market, you should expect to get a deal around 17.1% to 17.3%, but it should be at a discount, knowing that this bond will be paying a coupon in the next three months. If you want this bond, now is the time to buy. If you have a bit more money, go to the bank, and reach out to me; I will help you negotiate that deal.

In the next three months, we will see an increase in effective yield, and the market is reacting to that. It will be interesting to see how it plays out. Thank you so much

Happy Investing Everyone.

Alex Kakande