The Rate Now, or the News First

The 364-day Treasury bill rate stayed unchanged at 11.001%. The 91-day and 182-day rates, however, fell by about 0.25%, or 25 basis points. Short-term rates are moving down while the one-year rate holds steady, so the gap between what you earn on a 91-day bill and a 364-day bill has widened from 0.62% to 0.89%.

In simple terms, the market is now rewarding investors more for locking their money away for a year than for investing for just three months.

Comparing the last two auctions, the government put the same amount of paper on the table at both: Ugx 15 billion, 35 billion and 300 billion.

It borrowed much more on the 364-day bill and much less on the 91-day and 182-day. It wanted Ugx 15 billion from the 91-day and sold only Ugx 7.09 billion; it sold Ugx 16.98 billion of a planned Ugx 35 billion on the 182-day; and it sold Ugx 441.83 billion against a planned Ugx 300 billion on the 364-day. Against the auction of 5 August, it accepted 63.5% and 55.2% less at the short end and 36.5% more at the long end. That is consistent with its borrowing strategy for the financial year: borrow longer to reduce the refinancing rate, but not expensively.

Measured against the amount offered, demand was about 2.30 times cover, up from 2.19 at the previous auction. On the 91-day alone it rose to 4.14 times from 2.95. Demand was not the variable driving rates; the government’s acceptance policy was. Rejecting the expensive short-term bids pushed the 91-day and 182-day rates down and held the 364-day at 11.001%.

Inflation went from 3.7% in June to 4.0% in July and 4.1% in August. It is still below Bank of Uganda’s 5% target, but the upward trend may make investors demand more return, especially on a 20-year bond.

Brent crude rose 7.6% to $95.52 by 4 September. Because Uganda imports its fuel, higher oil prices will eventually push up transport and other prices. Investors know this could mean higher inflation in the months ahead.

It yielded 11.001% on 2 September, the same as on 5 August. That suggests short-term rates may have reached a floor rather than continuing to fall.

The Federal Reserve meets on 16 September, just seven days after the auction. If US rates rise, money could move toward the dollar, putting pressure on the shilling. Investors buying a 20-year Ugandan bond may therefore want extra return for taking that risk.

It last came out at a yield of 15.000%. The 15-year was only slightly higher at 15.200%, just 20 basis points, even though it runs five years longer. There isn’t much room for the 10-year rate to fall.

The old 20-year cleared at 15.650%. Because this is a brand-new bond with no trading history, investors may want a little extra return to buy it.

The old 3-year was at 12.00% and the 2-year at 11.700%. The government has been funding itself happily in the 2–5-year bucket, taking 126% of the 5-year offer at the 26 August auction, so we expect it to take more than it offers here.

Recently it has been willing to sell more bonds than originally advertised, but it has also rejected many bids. Since the government is already on track with its borrowing needs, it doesn’t have to accept every offer. It can reject bids where investors ask for yields it considers too high.

Bank of Uganda decides the coupon for the new bonds. If it sets one much higher or lower than expected, the price of the bond could change significantly even if the yield stays around our forecast.

If the shilling weakens before the auction, investors may ask for higher returns, especially on the 20-year, because a weaker shilling increases the risk of investing for a long time.

The American inflation figures come out on Friday, after Wednesday’s auction. They cannot change the rates investors agree to on Wednesday, but they could affect the next bond auction.

At our expected yield, the 20-year could give about 14.13% after tax. There are still reasons for Ugandan bond rates to come down over time: the government is ahead of its borrowing target, foreign reserves are strong, and oil revenue is expected. The main risks pushing rates the other way are a weaker shilling and higher imported inflation. Waiting for an even better rate could mean waiting until the shilling has already weakened.

The 20-year could earn about 14.13% after tax against 9.64% for the 3-year, a difference of about 449 basis points. The 3-year is also likely to attract more demand, meaning Bank of Uganda may reject more bids or reduce how much each investor gets.

Bonds have recently cleared at premiums to par: 110.850 on the 2-year, 108.547 on the 5-year, 105.418 on the 15-year. On a premium bond a slice of every coupon is your own capital coming back, taxed on the way, with a mark-to-par loss waiting at maturity. New bonds issued near par avoid that distortion entirely, which is a quiet advantage of buying at a debut auction rather than a re-opening.

The 91-day was quoted at 10.112%, but very few investors got allocations. The 364-day at 11.001% was easier to get. A good-looking rate means little if Bank of Uganda is starving investors at the short end and giving them little of what they bid for.

Inflation rose to 4.1% in August from 4.0% in July. The main pressure is coming from energy, fuel and utilities, although their increase slowed slightly. It is still below the 5% target, so there is no immediate cause for concern. Cheaper oil prices from August could take several weeks to show up in transport and fuel prices, which will matter when Bank of Uganda reviews interest rates in October.

There are no new credit figures yet. The latest data shows private-sector lending grew 16% year-on-year while the average lending rate remained high at 18.26%. New data is expected later this month.

Uganda exported less coffee in July, with both volume and total earnings falling against last year despite slightly higher prices per kilogram. Meanwhile the EACOP project is 92.7% complete, and Uganda has named its export crude “Pearl Sweet”, suggesting preparations for international oil sales are moving forward. First oil is still expected in late 2026, although that date has changed before.