Yields in government securities continue to rise

The increased demand for government securities by both the local and offshore investors and continuous need for money by the government for budget operations has led to a continuous rise in yields for government securities for the last four months. 
The Ministry of Finance, Planning and Economic Development borrows from the domestic market for fiscal policy operations using treasury bills for the short term and treasury bonds for the longer term. 
 
The government securities are highly considered by both the local institutional investors, individuals, and offshore investors because instruments are deemed as being risk free whether in times of economic hardship/financial turbulence or not because the investors get paid by the government. 
“There was an increase in demand for Government securities as reflected by the bid to cover ratio, which rose to 1.90 in October 2022 from 1.74 recorded the previous month. All auctions were oversubscribed during the month,” the Ministry of Finance, Planning and Economic Development said in its Economy performance report for the month of October, which has been seen by this publication.

Yields (interest rates) on Treasury Bills increased to 11.48 percent, 13.69 percent and 15.25 percent for the 91-, 182- and 364- day tenors, respectively during the month of October 2022.
“This compares with 10.39 percent, 12.23 percent and 14.25 percent recorded the previous month. Yields on Government securities have been on an upward trend since June 2022 partly due to a tight monetary policy stance. This implies an increased cost of borrowing for the Government which increases its future debt service obligations,” the Ministry of Finance, Planning and Economic Development said.
Yields on Treasury Bonds, the Ministry of Finance said during the month, the Government held one auction for longer dated tenors with yields continuing on an upward trend.

The report reveals that during the auction, the Government reopened two tenors, i.e. 3-year and 15-year tenors. The Yield to Maturity (YTM) on the 3-year tenor saw an increase from 14.75 percent in July to 15.25 percent in October. Likewise, the YTM on the 15-year tenor increased from 16.75 percent in July to 17.985 percent in October 2022.
The report further indicated that there were three auctions of Government securities during the month of October 2022, from which, Shs561.60 billion (at cost) was raised. Of these, Shs 489.32 billion was from Treasury Bills while Shs72.27 billion was from Treasury Bonds. 

Securities worth Shs352.75 billion were issued for the refinancing of maturing debt whilst Shs208.84 billion went towards financing other items in the Government budget.
On November 22, 2022, the Permanent Secretary/Secretary to the Treasury, Mr Ramathan Ggoobi said at Kampala Serena Hotel during the presentation of  the International Monetary Fund Regional Economic Outlook that the government is urgently seeking a loan of up to Shs2 trillion to meet the current public expenditure need.    
[email protected]