Africa-Press – Uganda. The attractiveness of higher interest rates in other markets has dimmed the interest of the offshore investors (foreign investors) in holding government securities such as treasury bills and treasury bonds.
Experts say the knock-on impact of this has been the weakening of Ugandan shilling. On Friday, the shilling traded against the greenback at Shs3,881.54 per US dollar buying and Shs3,891.54 selling.
“Regarding the offshore holding of government securities, as end of January 2024, they were holding about 8.7 percent of the total government securities. This is a decline compared to 13.5 percent in January 2022,” Mr Adam Mugume, the executive director of research at Bank of Uganda (BoU), told.
On March 11, BoU explained that the decline in the value of Ugandan shilling was partly caused by the outflow of some offshore investor funds from the domestic market. This, the central bank added, pursued more attractive yields available in other markets.
BoU also was alive to the strong domestic demand for foreign currency as market players anticipated further weakening of the shilling.
It also noted that seasonal factors that affect supply and demand dynamics of foreign currencies have played a role in shaping the current market conditions.
The offshore investors play a key role in the inflow of foreign currency US dollars in the country as they participate in the investment in government securities. This in turn leads to appreciation of the shilling against the greenback.
Report
The Finance ministry recently revealed in its report for January 2024 that Shs896.08 billion was raised from three auctions held in the domestic securities market.
“Of the amount raised, Shs506.48 billion was from T-Bills and Shs389.60 billion was from T-bonds. The total amount raised from the domestic market was used for refinancing of maturing securities,” the ministry said, adding that the annualised yields (interest rates) on Treasury Bills Yields (interest rates) on Treasury Bills remained unchanged for the 91 and 182 day tenors at 9.8 percent and 12.3 percent respectively in January 2024.
It also noted thus: “The annualised yield for the 364-day tenor edged upwards to 13.1 percent from 12.8 percent recorded the previous month. All auctions for Treasury Bills were oversubscribed, with the average bid to cover ratio being recorded at 1.94 in January 2024.”
The government reopened two bonds of two year and 10 year tenors. In comparison to the previous issuance of similar securities, the yields of both bonds edged upwards—from 13.0 percent to 13.2 percent for the two-year tenor and from 15.0 percent to 15.5 percent for the 10 year tenor.
The rise in yields follows the increase in additional borrowing requirements by the government approved by the House last December.
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