Quick Things You Need To Know About Treasury Bills And Bonds

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What are the gains to be made from T-bills and bonds? How does Uganda compare with other countries? How can one make the choice in what to invest? Julius Businge provides answers to these questions.

1. If I’m a low-income earner, can I invest in Ugandan T-bills or government bonds?

Yes, Uganda allows small investors to participate, with a minimum investment of UGX100,000 (about USD 25–30) in increments of UGX 100,000. This is lower than Kenya, where Treasury bills start at KES 50,000 (UGX 1.5 million), and Tanzania, where the minimum is TZS 500,000 (UGX 200,000). Rwanda is also accessible to small investors, with a minimum of RWF 100,000 (UGX 310,000) for non-competitive bids, making it similar to Uganda in encouraging financial inclusion for low-income earners. Competitive bids in Rwanda, however, require a minimum of RWF 50 million (UGX 155 million).

2. Do I get paid interest regularly, or only at maturity?

T-bills are bought at a discount and pay the full face value at maturity, so the interest is embedded in the purchase price. Bonds typically pay periodic coupons, semi-annual or annual, in addition to principal at maturity. This structure is similar across Uganda, Kenya, Tanzania, and Rwanda, with Rwanda’s Treasury bonds also paying semi-annual coupons.

3. What risks should I watch for when investing in Ugandan government debt?

Risks include inflation, which can erode real returns, currency depreciation, liquidity risk if selling before maturity, and sovereign risk in extreme scenarios. While Uganda has not defaulted on domestic payments in recent years, rising domestic borrowing and external obligations can strain finances. Kenya and Tanzania face similar risks, though Uganda’s higher yields partially compensate investors for these factors. Rwanda’s risks are somewhat lower due to its stable macroeconomic environment, but its lower yields mean investors must watch inflation carefully, as it can sometimes match or exceed T-bill returns, making real gains minimal. Currency fluctuations of the Rwandan franc (RWF) also matter for foreign investors.

4. Can inflation sometimes make a high yield ‘bad’?

Yes. If inflation runs close to or above the nominal yield, real returns can be low or even negative. For example, a 14% bond during 10% inflation provides a real gain of just 4%, emphasizing the need to compare yields against inflation forecasts. In Uganda, where inflation is often higher, this is a key consideration. In Rwanda, inflation has been around 6–7%, which means that a T-bill yielding 6.8% barely covers inflation, offering almost no real return unless interest rates rise or inflation falls.

5. Is Uganda’s bond market open to international investors?

Yes, foreign investors can participate but should consider currency and tax implications. Kenya and Tanzania also welcome international investors, and Tanzania’s recent oversubscribed bond auctions indicate strong foreign interest. Rwanda’s market is also open to foreign investors, who can access both Treasury bills and bonds through licensed brokers or banks, though they must manage currency risk due to fluctuations in the Rwandan franc.

6. How does Uganda’s domestic borrowing affect bond yields?

Higher domestic borrowing pushes yields up as the government competes for funds. Uganda plans to reduce domestic borrowing by 21.1% in 2026/27 to manage costs, while Kenya and Tanzania use strategies like debt buybacks and long-term bond issuance to maintain investor confidence. Rwanda has maintained moderate domestic borrowing, which has helped keep its yields relatively low. However, as Rwanda issues more debt to fund infrastructure projects, yields could rise in the future, though they currently remain below Uganda’s and Tanzania’s levels.

7. For someone with UGX 1 million, what mix of T-bills vs bonds might make sense?

For short-term holding under a year, 60–80% in T-bills (91- to 364-day) helps maintain liquidity and reduce risk, while 20–40% in a 2- to 5-year bond captures higher yields. This strategy balances safety, steady income, and inflation protection while diversifying across short and long-term instruments. In Rwanda, given lower short-term yields and stable inflation, a slightly higher allocation to medium-term bonds may be more attractive, such as 50–70% in bonds and 30–50% in T-bills, especially for investors seeking stable, predictable income.