The first auction into 12%, and the week Washington changed the rules

On Wednesday 21 October the Treasury sells 91-, 182- and 364-day bills into a 12% central bank rate for the first time, and that auction is the week’s lead. The shilling had its best week of the year and gave most of it back on Friday. Oil reached a five-month high before Washington licensed Russian diesel and waived the sanctions that would have stopped it. Everything in this issue bears on what Wednesday’s bills should cost.

Looking back at 12th – 16th October, and forward to Wednesday’s auction · Prepared by Lutaaya Emmanuel Victor and Busobozi Glen

A. What happened

Oil at Usd 109.86 was the week’s worst news for Uganda

Brent for December settled at Usd 109.86 on Friday 16 October, up 3.72% on the day and 4.91% on the week from Usd 104.72, and touched Usd 110 for the first time since May. West Texas Intermediate settled at Usd 101.41.

The US has allowed Russian diesel sales and suspended key sanctions

On 9 October, the US Treasury issued a licence allowing Russian-origin diesel to be sold, transported and imported, including into the United States, until 7 April 2027. However, it does not allow payments into certain Russian government accounts. Then, on 16 October, the US President signed an order that introduced tough penalties on Russian trade and on countries and businesses helping Russia evade sanctions, but immediately waived those penalties. The waivers have no fixed expiry date and remain in place until the President or Secretary of State changes them. The widely reported 60-day period is a review period, not a deadline written into the order. This happened just 28 days after the underlying law was signed on 18 September. Oil prices eased after the announcement: Brent traded around Usd 108 per barrel in Asian markets on Monday 19 October, about 1.3%–2% below Friday’s closing price. However, these were live market prices, not official closing prices, so this report continues to use Friday’s settlement of Usd 109.86 per barrel.

The shortage is in diesel, which is the barrel Uganda actually buys

The International Energy Agency’s 14 October report shows that diesel supplies are tight worldwide. In mid-September, wholesale diesel prices passed Usd 200 per barrel in Singapore and reached record highs of about Usd 220 in Europe and the United States. Global diesel production was 1.7 million barrels a day lower in the third quarter than a year earlier, while September exports fell by 700,000 barrels a day. This was largely due to reduced supplies from Russia and the Middle East. Stockpiles are also running low, with oil stored on land worldwide at its lowest level since at least 2016.

The agency expects diesel demand to exceed supply this quarter. Even if supply moves into surplus in early 2027, that extra supply will not be enough to make up for this year’s shortfall. Stocks may not recover until the second half of 2027. This is not a prediction that prices will keep rising; it means the world has very little spare stock to cushion a disruption. When supplies are already this low, even a relatively small interruption can push prices sharply higher.

The United States Energy Information Administration reports a similar problem in America. In September, diesel-related fuel stocks on the East Coast were 32% below their usual level for that time of year and are expected to remain about 20% below average through winter. US motorists and businesses were already paying an average of Usd 6.29 per gallon of diesel in September.

The October Federal Reserve rise has been priced out

The chance of the US Federal Reserve raising interest rates at its 27–28 October meeting fell to 16.1% by Friday 16 October, down from about 44% after Wednesday’s inflation report. US long-term borrowing rates also fell: the 10-year rate dropped from 5.24% to 5.10%, while the 30-year fell from 5.60% to 5.43%. The 1-year rate briefly rose to 4.53% on Wednesday before easing to 4.49%. This is good news for Uganda because lower US rates reduce the pressure pulling foreign investors away from Ugandan investments. The Bank of Uganda has identified rising interest rates in advanced economies as one reason for weaker capital inflows.

China grew 4.5%, and the part of China that buys commodities shrank

China’s economy grew 4.5% in the third quarter, up from 4.3% in the second quarter. However, the growth was uneven. Industrial production rose 5.5% in September and exports grew 16.4% over the first nine months, while retail sales increased by just 1.1%. Investment in buildings and other property-related projects fell 20.6%, showing that China’s property sector remains weak. This matters for oil because a slowdown in construction means less demand for energy and building materials, making it harder to sustain very high oil prices. It also helps explain why gold and industrial metals can behave differently: gold is influenced more by investment demand, while industrial metals depend heavily on manufacturing and construction. For Uganda, China’s economic health also matters because China is one of the country’s major lenders.

The reasoning

A bill cannot clear below the policy rate, and all three currently do. The 91-day is 1.94% below 12.00%, the 182-day 0.96% and the 364-day 0.5%. Adding the hike mechanically gives 12.31%, 13.29% and 13.75%. Our ranges sit above that because the hike is not the only thing that has changed. The Bank also raised its twelve-month headline inflation forecast to 7.0–7.5%, and oil has gone to Usd 110.

The rediscount rate at 15.00% is the ceiling that matters. A bank can draw liquidity from Bank of Uganda at 15.00%. This rate acts as a limit on how much interest banks can charge when they lend money by buying short-term financial instruments, like 364-day bills. The interest rate for these bills is capped at 15.50% because the Bank of Uganda won’t buy them at a much higher rate. Similarly, the rate can’t go much lower than 13.80% because the Bank of Uganda has no reason to buy them at such a low rate.

We anticipate the 364-day will see another volume increase. This pattern has been consistent at every bill auction this quarter. The 182-day has been Bank of Uganda’s most reluctant to accept, having taken 57% of that tranche on 30 September and we expect a similar outcome.

Cover should be weak. Banks face a 13.5% reserve requirement and a 16.00% bank rate. They are the natural bidders for bills and they have materially less to bid with than at any point this year. This suggests a thin auction at high yields is most likely.

• Bid at the bill auction, and bid non-competitively if your ticket is small. This is the first auction in which the front end pays something real. Non-competitive bids have been filled in full at every auction. If our predictions are correct, investing in a 364-day bill at an interest rate of 14.60% will give you an after-tax return of 11.68%, which is the best short-term return in this market for many years.
• Do not buy any bill in the secondary market before Wednesday. Everything on offer is priced off 30 September levels that sit below the policy rate. Paying 11.5% for a 364-day two days before an auction likely to clear near 14.6% is giving away three percentage points for no reason.
• The long end is still the better instrument, but it is no longer the only one. The 20-year nets 15.23% against a prospective 364-day at 11.68%. That is a gap of 3.55% for nineteen years of extra duration, against roughly 6% before the hike. For the first time this quarter, a saver has a genuine choice between a short, liquid, real return and a long one, rather than being pushed out the curve by a front end paying nothing.
• Keep the 28 October auction powder dry. Four bond tenors reprice next week against a policy rate that has moved 2.25% since they were last actioned. The 2-year at exactly the policy rate and the 5-year 1.74% above it are the most exposed, and the 25-year still has to reconnect to a 20-year that cleared higher than it did. That is where the largest single repricing of the month sits.

Legacy Hills Investments works alongside a select group of Uganda’s licensed fund managers, giving our clients access to unit trust and money market options across the industry rather than a single house view. The partners below are the names you will see referenced across our research.

1. 01Old Mutual Investment Group Uganda (OMIG) Limited
2. 02Britam Asset Managers Company (Uganda) Limited
3. 03ICEA Lion Asset Management Uganda Limited
4. 04SBG Securities Uganda Limited
5. 05Sanlam Allianz Investments Limited
6. 06GenAfrica Asset Managers
7. 07Cornerstone Asset Managers Limited
8. 08Kura Asset Managers
9. 09Xeno Investments
10. 10NSSF Uganda
11. 11XENO Investments Kenya
12. 12Etica Capital Kenya

Four bond tenors reprice next week against a policy rate that has moved 2.25% since they were last actioned. The 2-year at exactly the policy rate and the 5-year 1.74% above it are the most exposed, and the 25-year still has to reconnect to a 20-year that cleared higher than it did. That is where the largest single repricing of the month sits. Before that, bid at the bill auction, and bid non-competitively if your ticket is small. This is the first auction in which the front end pays something real. Do not buy any bill in the secondary market before Wednesday.

Published by Legacy Hills Investments Limited, an independent investment advisor. This newsletter is for general information only and does not constitute investment advice. Figures are drawn from Bank of Uganda’s Monetary Policy Statement for October 2026 of 14 October 2026 and its Invitation to Tender Issue No 1236 of 15 October 2026; the United States Treasury’s Office of Foreign Assets Control General License No. 135 of 9 October 2026 and the Executive Order of 16 October 2026 implementing the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026; the International Energy Agency’s Oil Market Report for October 2026; the United States Energy Information Administration’s Short-Term Energy Outlook of 6 October 2026; the Federal Reserve’s H.15 statistical release; the National Bureau of Statistics of China; the Uganda Retirement Benefits Regulatory Authority’s publication of 13 October 2026; and the Uganda Securities Exchange. Britam Asset Managers, SBG Securities and Cornerstone Asset Managers are Legacy Hills partner fund managers; anything here touching them is written to inform and never to advise. Investors should confirm current rates before making decisions.