Foreign appetite for Uganda debt at 2008 levels
Jan 23, 2012
Foreign holdings of Ugandan debt are approaching levels last seen before the 2008 financial crisis and could exceed them if high double-digit yields persist, a senior central bank official said on Friday.
Foreign holdings of Ugandan debt are approaching levels last seen before the 2008 financial crisis and could exceed them if high double-digit yields persist, a senior central bank official said on Friday.
The Bank of Uganda also plans to extend the yield curve to 15 years and to introduce a diaspora bond, Stephen Kaboyo, director of financial markets at the Bank said.
Soaring inflation in east Africa's third largest economy last year pushed Treasury bill and bond yields to all-time highs, attracting foreign inflows that have helped stabilise the local currency.
Foreign holdings now account for nearly 20 percent of outstanding domestic debt and could overtake the record levels reached before the 2008 credit crunch, Kaboyo said.
"We're creeping up to levels pre-2008 crisis," he said. "We hit about 25 percent of outstanding issues just before the crisis. If the current rates prevail we could even exceed that."
Kaboyo said 1-year paper, which yielded 24.3 percent at an oversubscribed auction last week, had attracted strong foreign interest. Yields on 2- and 3-year bonds are also above 20 percent, though down from their peaks.
"We have one of the most attractive rates in the sub-Saharan countries," he said. "International investors always look for yield and wherever they find a good yield they will invest. As long as the investment climate and conditions are conducive they will always bring in the money."
Kaboyo said he believed yields had reached their peak amid falling inflation, but added that they were likely to remain in double digits for some time.
Earlier this month the central bank kept its benchmark lending rate unchanged as inflation slowed to 27 percent in December after hitting 30.4 percent in October.
"With inflation coming down I think we've peaked at this level but rates are always sticky," he said. "They go up very quickly but are sticky coming down. We will probably take a bit of time to go back into single digit rates."
Falling yields will enable Uganda to press ahead with plans, maybe this year, to extend its yield curve to 15 years, Kaboyo said. The central bank is also awaiting approval for a 7-year bond to bridge the gap between 5- and 10-year paper.
Uganda is also planning a diaspora bond in the next 18 months. Kaboyo said the proceeds could be used to boost the real estate sector, though plans were still in their early stages.
"Most of the diaspora community, they normally look at construction, building homes, acquiring properties here, so the focus would be to beef up the real estate sector," he said. "But that's just one option."
The central bank is also developing the secondary bond market and is only months away from introducing a "state of the art" trading platform with automated settlement to replace the current paper-based system, Kaboyo added.