Changes in bonds market to improve participation, analysts say

Experts have said the move by the Central Bank to change pricing of government securities from multiple to single pricing will improve market activity in the secondary market.

Mr Faisal Bukenya, the head of treasury at Exim Bank on Monday, told Daily Monitor the move was a good initiative, which will “create liquidity in the secondary market”.
The market is considered to be liquid if there is enough money to trade large amounts of securities.

Mr Bukenya said the price disparities was being done in 400 basis points but the new move will allow dealers to trade government securities in 10 basis points.
This means, he said, that if a dealer buys a security at Shs10 they can sell it at Shs11.
“This kind of pricing will lead to increased market activities, which is good for the debt market,” he said.

Liquidity in the secondary market has exhibited considerable increase in recent years.
For instance, turnover in the secondary market rose to Shs5.1 trillion in 2017 up from Shs3.6 trillion in 2016 following reforms by Bank of Uganda about a year ago.
Mr Stephen Kaboyo, the Alpha Capital managing partner, said the Central Bank has been conducting multiple price auctions for many years and the move was a “major shift from that practice”.

From a market perspective, he said, single pricing encourages participation of bidders because it reduces the importance of specialised knowledge regarding market demand.
“Importantly, single price auctions reduce the treasury financing costs by encouraging more aggressive bidding by market players thereby broadening participation,” he said.

Central Bank announces
Change in pricing: On Monday BoU announced change of pricing of T-bills and bonds to allow competitive and non-competitive bidders to participate. Competitive bidders are investors with bid amounts of above Shs200m while non-competitive bidders have bid amounts of between Shs100,000 and [email protected]