Treasury Securities Markets and Performance of Banking Industry in Uganda (2009-2014) a Case Study of Bank of Uganda

Abstract

Mobilizing long term capital is a challenge in Africa with small capita market. Although the evidence that long term finance influences economic growth saw a wave of capital market reform in Mid-1990s, stock markets are yet to make significant contribution to growth financing. Majority of the Treasury Securities Markets (TSM) are in their infant stage offering minimal alternative source of financing. Uganda’s experience is no exceptional. It has a youthful TSM with handful Treasury bonds listed and yet to evolve long term maturity.

This study focuses on Uganda TSM. It analysis’s the microstructure characteristics of hey TSM and looks at the factors influencing these characteristics. It is hypothesized that a market that exhibits high liquidity, high efficiency and low volatility is more preferred as it facilitates participation by firms and investors. Such characteristics reflect on the soundness of the institutional structures and the policy environment. It is also hypothesized that growth of Treasury bond market is a prerequisite for development of Treasury bill market. Treasury bonds market is more liquid with higher traded value and more traded days as compared to the corporate bonds market. However, the TSM is less volatile which is comparable to the short end of the treasury bonds. The treasury bonds returns have a higher volatility for the longer tenors than the short tenor. This may explain the preference for short tenor bills than the longer tenor bonds. In explaining this we found that there are various institutional gaps with for example no credit rating agencies, primary dealers and underwriting services.

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