were beginning to get investment savvy are having second thoughts about where to put their hard-earned money to earn a reasonable rate of return. Personal finance experts recommend that the safest choice of balancing your portfolio or even building one from scratch is to put some money into bonds.


However, investment in bonds should be for the right reasons. If you want to increase your capital or preserve your income over the long haul, bonds are the right investment vehicle. Other goals include accumulating retirement income and saving for your children’s college education.

While you can invest in corporate or Treasury bonds, the latter seem to be more liquid. Treasury bonds are long-term debt instruments issued by the Government regularly to investors. There are two-year, three-year, five-year and 10-year government bonds.

Experts say government Treasury bonds are some of the most risk-free investments. You are not only assured of getting back your investment at the maturity date of the bond, but also the interest accrued because the Government is unlikely to get bankrupt.

To ascertain the value of your investment, look out for features like the bond’s interest rate, yield, price, maturity and redemption. The advantage with this asset class is that you can invest for a minimum face value of sh100,000.

The Bank of Uganda (BoU) carries out bond auctions periodically according to their issuance calendar. They invite bids from the public by issuing a notice in The New Vision. In 2005, BoU appointed primary dealers who are mainly commercial banks to participate in these auctions on the investors’ behalf. What you need to do is open a Central Depository System (CDS) account at BoU and complete a CDS Application Form 1.

After signing a CDS dealing agreement, you can participate in an auction (primary market) for bonds or buy then in between auctions from primary dealers and the Uganda Securities Exchange (USE).

According to dealers, which ever option you choose, you must first make a decision on the shilling volume of your bid because this will determine whether you will participate under competitive bids (excess of sh10m) or non-competitive bids (sh100,000 to sh10m).

The dealers have information about the auction results. Payment for all successful bids is done on the next business day after the day of auction.

What is key for an investor is the interest earned on your investment. This will depend on the coupon interest rate and whether the bid was priced at a discount, par or premium.

A bid priced at a discount is one where additional interest income is earned over the life of a bond when it is bought at a lower price than its face value. Par value, on the other hand, is the value of the bond on the maturity date, while premium is the interest expense paid by the investor when he/she purchases a bond at a price more than the par or face value.

Most investors receive interest payments semi-annually from the central bank. When the bond matures, the central bank will either issue a cheque or transfer proceeds to the commercial bank.

Treasury bonds can be bought or sold in the secondary market at the USE. Lucas Ochieng, the head of the treasury at United Bank for Africa, notes that the advantage of a primary market over a secondary market is that you are sure of picking up a good yield.

“If you miss the auctions, securities are available in the secondary market. And if you do not have a CDS account, a bank can hold an account on your behalf. But there is usually a scramble for securities, which means the yields may be lower,” he says.

Another advantage of bonds is that they can also be used as collateral for loans or other transactions.

This article originally appeared in The New Vision.