Investors flooded Bank of Uganda’s latest Treasury bond auction on Wednesday with UGX 3.23 trillion in bids, more than double the UGX 1.4 trillion the central bank had set out to raise.
BoU accepted just UGX 1.36 trillion, turning away over UGX 1.8 trillion.
The reopened tenors – two, five, 15 and 25 years – cleared at yields between 12.5% and 16%.
Demand was heaviest at the long end. The 25-year bond, maturing in 2050, drew UGX 1.28 trillion in bids against a UGX 350 billion offer, a near-fourfold oversubscription, and settled at a 16% cut-off yield.
The 15-year saw bids of UGX 520.56 billion against UGX 450 billion on offer, yet BoU accepted only UGX 111.28 billion, holding the yield at 15.65% and rejecting the bulk of what was on the table. The five-year and two-year bonds followed the same pattern: strong demand, cautious allocation.
What explains this unprecedented appetite for government securities?
Two forces are doing the work here. One is a domestic financial system with more liquidity than outlets to absorb it – a shallow equities market and limited corporate credit leave SACCOs, Pension Funds, insurers and banks with few places to put capital besides government paper.
The other is the yield itself: double-digit returns on sovereign debt are hard to match anywhere else in the market, and for institutions such as NSSF with decades-long liabilities, the 15- and 25-year bonds are close to the only instrument that fits.
BoU’s rejections matter as much as the demand. Accepting every bid would have pushed borrowing costs higher across the curve; instead, the central bank held its cut-off yields and let roughly UGX 1.87 trillion go unfilled.
That restraint is doing real work for debt sustainability, even as it means the government raised slightly less than planned toward its UGX 84.39 trillion budget for the 2026/27 financial year.
What the auction doesn’t resolve is the tension underneath it. Retail and non-competitive bids accounted for barely UGX 22.7 billion of what was accepted – a rounding error next to the institutional weight driving demand.
And every shilling banks put into 16% government paper is a shilling not underwriting a business loan.
Analysts have flagged this directly: sustained appetite for Treasury bonds can crowd out private credit, and in an economy where investment and job creation depend on that credit reaching SMEs rather than the government spending, oversubscription that looks like confidence from one angle can look like scarcity from another.
The auction did what it needed to. It funded government financing needs in local currency, avoided foreign-exchange exposure, and signaled, via the strength of demand at 25 years, that savers are still willing to bet on Uganda’s macroeconomic trajectory decades out.
However, for a developing economy with ambitious goals, cheap capital reaching private businesses is not a mere nice-to-have; it is the mechanism through which growth and employment actually happen.
Every shilling a bank commits to a 16% government bond over 25 years is a shilling it did not lend to a manufacturer, a trader or a farmer, and government borrowing at this scale is financing recurrent budget needs, not building factories or roads that generate their own returns.
A financial system where banks would rather fund a government that suffers from chronic fiscal indiscipline rather than take on private credit risk is not a sign of depth; it is a sign that the safest, most convenient trade in the market happens to be lending to the State.
That pattern, repeated auction after auction, is worth treating as a structural risk to private investment, in a region where credit is increasingly becoming cheaper, hence risking making our business sector less competitive in foreign markets.
In the final analysis, private-sector credit growth is the number that will actually determine whether Uganda can achieve its ambitious economic development goals going forward.
