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How To Invest In Uganda Government Securities

Government of Uganda borrows funds from the public. Bank of Uganda (BoU) is an Agent of Government to collect money (since 1969).

The public/lenders place funds with government through their Central Securities Depository (CSD) accounts opened at BOU.

The following are the instruments auctioned and used for fiscal purposes (prior to July 2012, these instruments were exclusively used for monetary policy implementation purposes).

Treasury bills – structured in three maturities, i.e. 91 days, 182 days, and 364 days. Treasury bills are referred to as short-term instruments (securities). These securities are issued at a discount and currently they account for less than half of total outstanding securities, i.e. government securities that are yet to mature.

Treasury bonds – these are new instruments on our market and compared to the Treasury bills, they are long-term securities in maturities of 2, 3, 5, 10 and 15 years.

 Treasury bonds were introduced mainly to extend the yield curve and to mitigate the cost of sterilization. The legal basis for issuing securities: Treasury Bill Act 1969, and Public Finance and Accountability Act 2003.

Who Can Invest In Government Securities?

Commercial banks, Insurance companies, Individual companies, Government agencies, Pension funds, Individuals (of at least 18 years of age) can invest in Government Securities.

Offshore investors (individual persons and corporate entities)–through a local agent i.e., a commercial bank registered and licensed in Uganda can also invest in Government Securities.

Advantages Of Investing In Uganda Government Securities

The advantages include; they offer a competitive rate of return, they are risk-free instruments,  it is a saving mechanism , they are very liquid; can easily be sold in the secondary market and  they can be pledged as collateral for borrowing.

Investment Procedures

All  investors  wishing  to  participate  in  the  treasury  bills/bonds  transactions  must  be  registered on  the CSD (Central  Securities  Depository System).

An investor registers by filling one CSD Account Opening Form at BoU.  The form is delivered to a commercial bank that opens up the CSD account on behalf of BOU. Only registered participants are eligible to submit bids in auctions.

There are two categories of investors or bids during auctions; Competitive investors –investors whose bids exceed 200million shillings AND Non-competitive investors –investors whose bids range from Shs100,000 to 200 million shillings.

All bids, competitive and non-competitive, must be submitted through a commercial bank. Bids are captured on the Central Securities Depository  System (CSD)by Commercial banks for themselves and for their clients.

The  auction  is carried  out  at  the  Bank  of  Uganda on the  auction  day  (usually  Wednesday  at 10am); there is no need for presence of any investor to witness the auction.

Settlement

Bank of Uganda applies a T+1 settlement arrangement.  All successful bids are settled by directly debiting the commercial bank accounts at the Central Bank for the value of the cost of the securities of the investments through a particular commercial bank. 

Securities are automatically created on the CSD after settlement through the RTGS at 12 o’clock on settlement day.

 Bank of Uganda issues electronic securities and they are stored electronically. Holidays -On Unscheduled holidays(this is a day which is not a Business Day and the market was  not  aware  of  such  fact),  settlement for  auctions and  redemptions  will  be extended  to  the next business day.

In the event that the settlement for auctions and redemptions is extended due to  an  unscheduled  holiday,  there  will  be no extra  interest  accrued. 

In  the  event  that  the settlement for  auctions is  extended  due  to  an  unscheduled  holiday, the  coupon  payment and redemption dates will remain as specified in the Invitation to Tender.

Re-Auction Procedures

The  public  is  given  a  7-days (14  days  for  bonds) notice of the Bank’s intention to auction Treasury bills/bonds through one or two of the leading newspapers and via the BOU website a s well as a email to the main market participants.

All  bids  must  be  submitted  through  Primary  Dealers except  for  commercial  bank bids.

 General Rules 

The investor must be registered on the CSD. All bids must be delivered through a Primary Dealer bank.

A bidder cannot place both competitive and non-competitive bids in a single tenure of a Government security.

A maximum of four competitive bids is allowed for each tenure.

Click here to get details on how you can make money by lending government.

Credit: BoU

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