Introduction to Uganda’s Bond Market
Uganda has made a significant debut in the bond market with the introduction of a 25-year bond. According to recent auction results, the bond was oversubscribed, but the central bank rejected more than 90% of the offers. This development has sparked interest among analysts, who point to the divergence in the central bank’s and investors’ assessment of the bond’s risk premium.
The Purpose of the Bond
The Ugandan government introduced the long-term bond to extend its debt maturity profile and limit cash flow pressures. This move is expected to have a positive impact on the country’s economy by reducing the burden of short-term debt.
Auction Results
At the auction, the central bank received bids worth a total of 851.1-billion shillings for the 500-billion shillings worth of bonds offered. However, it accepted just 57.2-billion shillings. The bond had a yield of 16.0%, which is lower than the 17.6% rate on the 15-year bond also on sale at the same auction.
Analysts’ Insights
Stephen Kaboyo, managing director of Kampala-based Alpha Capital Partners, commented on the auction results, stating that the risk premium as seen in the unsuccessful bids indicates what investors perceive as the long-term prospects of the economy. He also noted that investors’ pricing of the bond’s risk was out of sync with the issuer, and investors were likely concerned that the economy could stumble under the weight of several years of debt accumulation, with fiscal consolidation becoming more elusive.
Conclusion
The introduction of Uganda’s 25-year bond is a significant development in the country’s bond market. Although the bond was oversubscribed, the central bank’s rejection of most bids reflects the divergence in risk assessment between the central bank and investors. As the country continues to navigate its debt maturity profile, it is essential to consider the perspectives of both the central bank and investors to ensure a stable and sustainable economic future.
