Friday December 29 2017

Foreign investors’ grip on government securities drops

Government securities. Bank of Uganda (BoU)

Government securities. Bank of Uganda (BoU) headquarters in Kampala. The government issues Treasury Bills and Treasury Bonds through BoU to finance its fiscal operations. FILE PHOTO  



The amount of money foreign investors held in government securities has dropped due to a decline in interest rate.
The Treasury Bills and Bonds have declined to Shs770 billion, down from Shs1.3 trillion.
The government issues Treasury Bills and Treasury Bonds through Bank of Uganda to finance its fiscal operations.
In an interview with an interview with Daily Monitor recently, director of financial markets Bank of Uganda, Mr Stephen Mulema, said: “As interest rates in government securities came down, some offshore players decided not to reinvest maturing treasury securities at the new lower interest rate levels while a few others sold their holdings in the secondary market. Consequently, their holdings as a category have gone down to 6.2 per cent.”
The investment in government debt market is opened to both local and foreign investors in the markets.
However, the decision by the offshore investors (foreign investors) not to do reinvestment in government has not had a negative impact in the government securities market since Uganda government debt market is open to both foreign and local investors.
Mr Mulema said: “The local demand has been very strong. Therefore, the exit of foreign investors from this market has had no negative impact on the interest rates.”
The current yields in government securities are as follows: 91 days treasury bill is 8.507 per cent, 182 days 8.656 per cent, 1-year 9.109 per cent, 2-years 11.015 per cent,3-years11.217 per cent, 5-years 12.701 per cent, 10- years14.342 per cent and the 15-years is 14.343 per cent.

Total stock
Currently, the total stock of the Treasury Bills and Bonds in the secondary market is 12,417.80. Of this, Treasury Bills amount to Shs3.267 trillion and Treasury Bonds Shs9.150 trillion.
Asked about how much of the treasury bills and treasury bonds will finance the budget for this financial 2017/18 budget, Mr Mulema said as of December 15, 2017, the total net government securities issuances (new money which is the net amount after rolling over maturing securities) amounted to Shs565.7 billion.
In a telephone interview with Daily Monitor, the director global markets at Stanbic Bank Uganda, Ms Anne Juuko, said the reason why the offshore investment is government securities is because the rates are down.
“They used to hold 10 per cent in the stock of government securities in the market when the rates were high. They prefer to invest in Egypt, Ghana and Zambia where the rates are still high,” she said.