Increased issuance of treasury bills/bonds and the participation of foreign investors in Uganda’s domestic financial market have caused rates on government securities to rise marginally over the last one month.
Bank of Uganda explains the rise as largely a result of the need for increased domestic financing to accommodate the shortfall in revenue and increased government expenditure.
The interest rate on the 91 day treasury bill went up from 8.82 per cent in January to 9.41 per cent in February while the 182-day treasury day rates went up from 11.58 per cent to 11.97 per cent in February.
The two-year treasury bonds rate went up from 13.4 per cent to 13.72 per cent in February, while the 15-year treasury bond rates went up from 15.15 to 15.25 per cent.
Bank of Uganda perspective
In an interview with the Daily Monitor last week, the Director Domestic Financial Market Bank of Uganda, Mr Stephen Mulema, said: “I can attribute the increase in yields to the increase in issuance volumes given that the rising trend began when we increased the issuance amounts.”
However, Mr Mulema added: “That said, the increase in yields has been falling from 0.33 per cent to 0.3 percent in February to 0.2 per cent in the last auction of the 364 treasury bill in March.”
In most cases, high inflation rates influence higher rates charged on government securities, but Uganda’s inflation rate is expected to be around 4.4 to 5.5 per cent over the short term of less than 12 months.