Why you should consider B.o.U treasury bonds in May

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Why you should consider B.o.U treasury bonds in May
The central bank in Kampala

Financial and investment experts say that the bond market is likely to guarantee good returns and investors should be looking forward to buying the upcoming treasury bond by the Bank of Uganda .

Next month, on May 15, the Bank of Uganda will be auctioning a 15-year treasury bond with a 16 percent coupon rate.

This particular bond will reach maturity on May 14, 2037.

The Bond has the highest Coupon rate among the current on the run Bonds and for those who want to maximize cashflows and or lock in a good cashflow for the future, this is one of those Bonds.

The bond's 16 percent coupon rate translates to a net return of approximately 14.4 percent after accounting for the 10 percent withholding tax on treasury bonds.

According to Alex Kakande, investors looking to plan for their futures, especially those who missed the opportunity with the 10-year bond auctioned last week, would do well to consider this bond as a worthy addition to their portfolios.

“For newcomers to the bond market, now is the moment to engage with commercial banks, open a Central Securities Depository (CSD) account, and prepare your finances to invest in this Bond,” he said.

According to the Bank of Uganda's current bond calendar, this may be the final auction for the 15-year bond,

Financial experts believe that investors looking to plan for their futures, especially those who missed the opportunity with the 10-year bond auctioned last week, would do well to consider this bond as a worthy addition to their portfolios.

“For newcomers to the bond market, now is the moment to engage with commercial banks, open a Central Securities Depository (CSD) account, and prepare your finances to invest in this Bond,” Kakande wrote on his blog

According to the Bank of Uganda's current bond calendar, this may be the final auction for the 15-year bond, presenting investors with a possibly last chance to purchase at this yield.

However, it might be extended or reopened in the coming periods but for now, this May 15, 2024 action will mark the last time you will be in position to buy it from the primary market, and in the future you will only be able to access it on the secondary market)

From the last Auction in February 2024, the bond auctioned at a yield of 16.3 percent and sold at a discount. It remains uncertain whether the upcoming auction will offer the bond at a discount or par value, but at least par value is expected.

Another advantage for potential investors is the immediate return on the investment.

“Those who invest in the bond on May 15 will receive their first coupon payment on May 30th, just two weeks post-investment, which will equate to a 7.2 percent return."

With the biannual coupon payment structure, another payout follows in November, effectively yielding approximately 14.4 percent before the year's end in a span of just seven months, you would have earned back your 14.4 percent.

“In Investments, timing becomes particularly favorable for those looking to optimize liquidity.”

On the secondary market, the bond is currently trading at about 15.4 percent to 15.8 percent, which aligns with expectations for its performance in the primary market.

Given its good net return of 14.4 percent after tax, an investment now would theoretically enable a full recovery of the principal within 5.5 years, with continued profit for the subsequent nine years.

Investors who reinvest their returns (through the power of compounding) could see their portfolios grow even more rapidly.

For those ready to take action, now is the time to get your plans in order. Whether by opening a CSD account or gathering needed funds, especially for those in the diaspora eyeing investment in Ugandan treasury bonds.

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