Offshore investors shifting to long term govt debt
Recently, Bank of Uganda noted that an increase in exit of offshore investors from government debt was putting pressure on the shilling. Photo | file
What you need to know:
According to Mr Allan Muhinda, the Stanbic Bank director for global markets, there has been elevated uncertainties in the economy, forcing foreign investors to transfer their investment from least developing countries in dollar terms to safe havens.
Offshore investors in Uganda’s debt market have triggered a shift from shorter government Treasury Bills to longer term Bonds while a number of them are seeking to sell off their holdings.
This, experts say, has been due to an increasing desire by some offshore investors to shift their investments to safe havens such as the US, which has experienced a raise in interest rates.
Responding to Monitor’s questions on Monday, Mr Allan Muhinda, the Stanbic Bank director for global markets, said there has been elevated uncertainties in the economy, characterised by unprecedented levels of inflation that have affected financial markets, forcing the foreign investors to transfer their investment from least developing countries in dollar terms to safe havens.
Additionally, he said, the decision by central banks in advanced economies as well as in developing countries to control inflationary pressures has seen the cost of financing surge thus reducing the number of portfolios while others have shifted to longer term securities of five to 20 years.
Recently, Bank of Uganda noted that an increase in exit of offshore investors from government debt had put pressure on the shilling, noting that withdrawals of $52m had been observed in the second half of the 20221/22 financial year.
Mr Muhinda said because the dollar had strengthened the number of portfolio investors in the Uganda debt market had reduced, moving to safe havens.
In its monetary policy report, Bank of Uganda noted that during the period ended June, yields on the Treasury securities had eased at the short end and edged up at the longer end of the curve.
For instance, the Central Bank noted, rates for 182-day and 364-day Treasury Bills and two-year bond yields had edged down to an average 8.3 percent, 9.3 percent, and 9.9 percent from 8.6 percent, 10.1 percent, and 10.7 percent in the quarter to February, respectively.
Conversely, Bank of Uganda added, bond yields on the 15-year and 20-year tenors had increased by 10 basis points to averages of 14.5 percent but noted that with the 91-day Treasury Bill and 10-year bond whose rates remained unchanged at 6.7 percent and 13.8 percent were the only exceptions.
Similarly, average annualised yields on two-year, three-year and 10-year bonds eased to 10.2 percent, 12.4 percent and 13.7 percent, respectively while yield on 20-year bonds edged up to average of 15.6 percent in the quarter to May.
