(Kampala) – The Uganda shilling showed little movement on Wednesday, closing the trading day at the 3716/3726 levels. The day’s trading was largely driven by interbank activity, with only a few dollar sellers participating. Despite this, traders noted that trading volumes have been relatively low in the early days of September, as businesses are still assessing their financial needs. Market analysts expect a rise in activity as the month progresses.
According to a report by Absa, the money markets remained adequately liquid, with overnight yields averaging 10.26%. Liquidity in the market has allowed for stable overnight borrowing rates, which is a positive sign for market participants.
The Bank of Uganda also held a treasury bond auction, issuing bonds of varying durations: 2-year, 5-year, and 15-year maturities. These bonds saw interest rates average 15.5% for the 2-year bond, 16.0% for the 5-year bond, and 16.5% for the 15-year bond. The auction raised over UGX 1.1 trillion in total, with UGX 465 billion coming from the 15-year bond, UGX 403 billion from the 5-year bond, and UGX 263 billion from the 2-year bond.
According to investment professional Alex Kakande, this marked a significant rebound in interest rates for long-term bonds compared to the previous auction in July. In that auction, the government had accepted lower bids, resulting in underutilized cash and a drop in interest rates in the fixed income market. Since then, rates have gradually risen, stabilizing around 16% in September.
The auction outcome indicates a recovery in investor confidence, as interest rates edged higher by 50 basis points from their July lows. This resurgence is particularly important for the government, as it successfully raised substantial funds through these bonds, ensuring cash flow for its financial needs.
Below is a summary of the treasury bond auction:
| Bond Type | Amount Raised (UGX) | Average Yield (%) |
|---|---|---|
| 15-year | 465 billion | 16.5 |
| 5-year | 403 billion | 16.0 |
| 2-year | 263 billion | 15.5 |
Investors will be closely watching future auctions as they anticipate further stabilization or potential shifts in interest rates.
