Investing in Treasury Bonds. The 15-Year 16% Bond coming on Sale.

Feb 7, 2024

The 'Sweet 16' Returns: An Outstanding Treasury Bond Investment Opportunity

On February 21, 2024, the Bank of Uganda will be auctioning off the 15-year Treasury Bond UG12K1405378 in the primary market. This is recognized as one of the best Treasury bond opportunities in the market given it’s high demand and high coupon rate, and buyers have the chance to acquire it directly from the primary market at a competitive price.

This Bond features an appealing 16% coupon rate alongside an expected yield of around 15.5% at the time of Auction, with a maturity period set for May 2037. By the auction date, the Bond will have accrued a total of 83 days, thereby automatically guaranteeing any accrued interest to the successful primary bond bidders.

Given that this is a 15-year bond, you will only be liable for a Withholding Tax (WHT) of 10% on the coupon income. Upon maturity, you will receive back your full principal investment.

To give some context, a person with liquid cash of 100 million UGX would earn a gross coupon income of 16 million UGX each year, or approximately 14.4 million UGX net of tax (equivalent to earning 1.2 million UGX monthly over the ensuing 14 years). After every 6 months, you would receive 7.2 million UGX credited to your commercial account.

This bond also makes an excellent safe investment for your child’s education fund. Starting with an initial investment of 50 million UGX, you would automatically earn approximately 8 million UGX annually over the next 15 years, potentially enough to cover your child's school fees through to university. That's the power of careful financial planning.

The capacity for compounding on this bond is also highly beneficial. With an initial investment of 100 million UGX and by reinvesting the net 6-month coupon income of 7.2 million UGX into another 15-year Treasury bond (topping up 10 million UGX in investment each year), your bond portfolio could grow from just 100 million UGX in 2024 to over UGX 1 billion by 2037.

One assumption underlying this projection, however, is that bond coupon interests will remain comparably high (around 13%) for the next 5-10 years, facilitating high returns on your bond investment.

Note. Treasury Bonds are a relatively low-risk investment option, providing a fixed income through bi-annual coupon payments and returning the principal amount at maturity. They are an excellent choice for investors looking for stability and consistent returns over the long term.

Happy investing Everyone!

Alex Kakande