The Ceiling at Fifteen, and the Shilling Gives Way

The 10-year and 20-year bonds both cleared at 15.000%. Normally an investor expects a higher yield for lending for longer, but that extra return has disappeared. The 15-year actually paid more, 15.200%, when it was last issued on 26 August. Ten extra years of risk are currently worth nothing at all.

Investors offered Ugx 1.14 trillion for the 20-year and government accepted Ugx 105 billion of it, against the Ugx 430 billion it had advertised. It was not willing to pay more. The new 20-year cleared at 15.000%, below the older 20-year at 15.650%, and the message is plain: government would rather borrow less than pay above 15.000%.

The new 3-year cleared at 12.000%. So did the 3-year re-opening on 12 August, hence the identical headline rate. But the August bond cost 107.347 per 100 and the new one cost exactly 100.000. When you buy a bond above face value, part of every interest payment is really your own money coming back; tax is charged on the whole payment anyway, and the premium you paid is gone when the bond is repaid. A bond issued at 100 has none of that problem.

Measured against the amount offered, bids across the three bonds came to 2.10 times the Ugx 990 billion advertised, and 2.64 times on the 20-year alone. Just as at the Treasury bill auction a fortnight ago, demand was not what set the rate. The government’s decision about what to accept was.

It has already lost about 2.2% against the dollar in five days, and that affects what your money is worth by the time the auction comes. The currency, not the inflation print, is the variable to follow this week.

The 10-year and 20-year bonds offered almost the same return last week, and they are trading within a whisker of each other now. In plain terms, locking your money away for another decade buys you almost no extra return, so there is little reason to pay for the privilege in flexibility.

At current rates the new 3-year keeps about 9.52% after tax against 8.63% on the 364-day Treasury bill, and it was issued at exactly 100, so none of the premium problem applies. Confirm the tax rate with your dealer before you invest.

Government plans to borrow less from July 2027, but it still expects to raise about Ugx 25.9 trillion locally before then, so auctions are likely to run much as they have. The reduction also depends on it collecting more tax. December’s Budget Framework Paper will give the first real picture.

It moved from about 3,774 per dollar on 7 September to 3,867 on 11 September, a fall of roughly 2.2% in five days and the weakest the shilling has been all year. An independent rate series puts the same day at 3,868.30 and also records it as the 2026 high for the dollar. The cause is not local: higher expected American interest rates make dollars more attractive to hold, so money moves out of currencies like ours. Uganda imports all of its fuel, so this reaches pump prices within weeks.

Trading on the Uganda Securities Exchange has almost doubled, reaching Ugx 101.8 billion by the end of August against about Ugx 56 billion last year. It remains concentrated in a few names: MTN accounted for 69% of the money traded, Stanbic 21% and Umeme 5%.

The rise is encouraging, driven by stronger company results, dividends and greater investor interest. But the market is still thin, which means a large investor may struggle to sell a big holding quickly without moving the price.

The Umbrella Fund is earning 12.94% a year, a relatively attractive return with flexibility and a Ugx 20,000 entry point. The Money Market Fund, at 11%, suits shorter-term savings and easy access; the Fixed Income Money Market Fund (UGX), at 13%, pays more for investors seeking income from fixed-income holdings. For diversification beyond Uganda, the USD Fund is at 4.53%. Which one fits depends on your return expectations, time horizon, currency needs and how quickly you need your money back.

On 7 September, Governor Michael Atingi-Ego said Uganda’s high interest rates are partly driven by heavy government borrowing: when government takes a lot from the local market, less is left for businesses and individuals, which pushes bank lending rates up. The Bank also disclosed security incidents involving lost laptops and fraudulent payments. The Governor said weaknesses had been identified and systems strengthened, but declined to give details, saying those would be discussed privately with Parliament.

On Thursday 10 September the finance minister met stakeholders at Munyonyo to open work on the budget for the year starting July 2027, the first step in a process that ends with the Budget Speech next June. No figures have been set. What was announced is a direction rather than a number: new loans only for projects that can show a return, spending the loans already signed for instead of leaving the money unused, and cutting spending it does not consider a priority. This reaches ordinary investors because government borrows from two places, from abroad and from us, through the Treasury bills and bonds it auctions. Consultations run around the country until 2 October, and the actual figures arrive in the Budget Framework Paper, around December.