A Guide to Investing in Uganda Government Treasury Bonds
Learn how to invest in Uganda Government Treasury Bonds with this comprehensive guide. Understand bond types, account setup, bidding process, returns, and more—all explained step by step.
Introduction
Investing in government securities is one of the safest ways to grow your money while supporting national development. In Uganda, Treasury Bonds offer individuals and institutions an opportunity to earn reliable returns over the medium to long term. This article provides a comprehensive guide to Uganda Government Treasury Bonds—what they are, how they work, who can invest, and the step-by-step procedures involved in the investment process. Whether you are a first-time investor or looking to diversify your portfolio, this guide will help you understand everything you need to know to make informed decisions when investing in Treasury Bonds issued by the Bank of Uganda.
What are Treasury Bonds?
Treasury Bonds are long-term debt instruments with the following tenors:
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2 years
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3 years
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5 years
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10 years
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15 years
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20 years
They may be issued at par value, at a discount (below face value), or at a premium (above face value). Investors in Treasury Bonds are paid a fixed coupon interest amount every 6 months based on the face value of the bond until maturity. The investor could also earn interest by buying bonds at a discount.
Who Can Invest in Treasury Bonds?
Residents and non-residents who have opened up CSD account(s) may invest. Investors may be individuals, organizations, or corporates. Investors must have attained the contractual age of 18 years.
What Must I Do to Invest in Treasury Bonds?
You must register with the Central Securities Depository (CSD) system at Bank of Uganda.
What is the Central Securities Depository (CSD) System?
The CSD is an electronic register, which does the following:
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Registration of investors
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Auctioning of Government Securities
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Creation and storage of investors' electronic securities
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Redemption of securities at maturity
How to Open an Account on the CSD
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Complete a CSD Account Opening Form
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Provide one passport photograph of yourself or your signatories
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Submit the completed form to your bankers
The CSD Account Opening Forms are available on the Bank of Uganda website and can also be obtained from the commercial banks.
How Much Money Do I Need to Invest in Government Bonds?
You can invest in Treasury Bonds for a minimum face value of Shs 100,000. Treasury Bonds are issued in multiples of Shs 100,000 (Face Value).
Submission of Bids
All bids (competitive and non-competitive) must be submitted through the investor's commercial bank of choice. Bid application forms are available on the Bank of Uganda website and can also be availed to the investors by the banks.
All bid application forms must be submitted to the banks latest by 9:00 a.m. on auction day. Investors are advised to submit their bids to the banks as early as possible, preferably before auction day.
How Can I Know the Terms of the Treasury Bond Issue?
Bank of Uganda publicizes details of an upcoming bond through the local newspapers as well as on the Bank website and also to all commercial banks. The invitation to tender spells out all the terms and conditions of the Bond issue.
How Can I Compute the Cost of My Bid?
The cost of your bid can be computed as follows:
Cost of bid = Face value (Maturity value) x price / 100
Example of Computing Cost of Bids on Auction Day:
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Treasury Bonds Priced at a Discount
Cost of bid = 11,000,000 x 88.852 / 100 = 9,773,720 -
Treasury Bonds Priced at Par
Cost of bid = 11,000,000 x 100 / 100 = 11,000,000 -
Treasury Bonds Priced at a Premium
Cost of bid = 11,000,000 x 111.512 / 100 = 12,266,320
How Can I Determine the Yield or Rate of Return of My Bid?
The yield or rate of return for your bid (price) can be determined by referring to the corresponding yield to maturity (YTM) column in the pricing guide tables available through commercial banks.
For non-competitive bids, use the pricing guide tables for the bond being auctioned, by referring to the YTM of the price that is closest to the auction's highest yield (lowest price per 100) of the successful bids.
Contact Bank of Uganda at 041 4234929 or 0414 258441/9 Ext. 2044 in the afternoon of the auction day for the exact YTM.
Paying for Successful Competitive and Non-Competitive Bids
All non-competitive bids succeed automatically.
Payment for your bids is effected electronically by debiting your account with your bankers. Bank of Uganda debits your commercial bank, who will in turn debit your account with the cost of your investment. Bank of Uganda does not receive cash or cheques for purposes of investments in government securities.
How Much Interest Will I Earn on My Bid?
The interest earned will be based on:
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Coupon interest rate
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Whether your bid was priced at a discount, par, or premium
Interest = (Face value x Coupon interest rate x No. of Years for the bond) + (Face value - Cost)
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A discount reduces the cost, resulting in additional interest to the coupon interest.
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A premium increases the cost, reducing the yield.
What If I Need My Money Before Maturity?
You can sell your Treasury bond(s) to a commercial bank, another Treasury bond investor, or through a broker via the Uganda Securities Exchange.
Note: Bank of Uganda will only rediscount bonds at the prevailing rediscount rate for Treasury bonds with less than 91 days to maturity. This should be a last resort option.
How Will I Know the Value of My Bonds in the Secondary Market?
Contact commercial banks or brokers of the Uganda Securities Exchange to get the bid (buy) prices for your bond.
In the secondary market:
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Sell to the party with the highest bid (buy) price
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Buy from the party with the lowest ask (sell) price
How Will I Receive My Coupon?
Bank of Uganda will transmit the coupon interest to your commercial bank on each coupon interest day.
How Will I Receive My Investment at Maturity?
Bank of Uganda will transmit the proceeds of your Treasury bond(s) investments (face value and last coupon payment) to your commercial bank.
Will I Have to Pay Tax on the Interest?
Yes. Bank of Uganda will deduct withholding tax at the prevailing rate when paying coupon interest and rediscount proceeds (if applicable).
Treasury Bond Invitations to Tender
Bond auctions are advertised in the local press during the week preceding the auction. A general prospectus is always featured on the Bank of Uganda website at www.bou.or.ug.
Steps to Participate in Treasury Bond Auctions
Step 1: Complete CSD Form 2 (Bid Application Form).
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For competitive bids (above Shs 200,000,000), provide the price per Shs 100.
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For non-competitive bids (Shs 100,000 to Shs 200,000,000), leave the price field blank.
Step 2: Deliver your bid to a commercial bank.
Step 3: Bank of Uganda will issue an advice and statement from the CSD to acknowledge your investment in Treasury Bonds.
Glossary
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Ask price: The price at which an investor is willing to sell a Treasury bond.
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Bid: A commitment to the Bank of Uganda regarding the amount, price, and tenor of the bond.
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Competitive Bid: A bid exceeding Shs 200,000,000 at a stated price.
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Non-Competitive Bid: A bid between Shs 100,000 and Shs 200,000,000 at the lowest price (highest yield).
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Central Depository System (CSD): A computerized register at the Bank of Uganda.
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CSD Id: Identification number issued upon CSD registration.
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CSD Instrument Account: Records investments in Government securities.
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Coupon Interest: Fixed interest paid semi-annually.
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Discount: Interest income from buying below face value.
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Face Value: The value of a bond on maturity date.
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Premium: Additional cost from buying above face value.
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Maturity Value: Same as face value on maturity.
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Par Value: Face value of a bond.
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Yield to Maturity (YTM): The discount rate making all future payments equal to today’s bond price.
Important Contact Numbers
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General Information on Auctions: +256-41 4258441
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Customer Inquiries/Complaints: +256-41 4234929 / +256-41-4344737
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BOU Website: www.bou.or.ug
