Africa-Press – Uganda. Imagine planting a tree, knowing you might never sit under its shade. That is the kind of patience and belief government is asking from investors this month.
Next Wednesday (August 6), Bank of Uganda (BoU) will sell the country’s first-ever 25-year bond, with a target of borrowing Shs500b from the public, to be repaid in 2050, 25 years from now.
By then, today’s newborns will be graduating from university.
In simple terms, government is asking investors to lend it money for an entire generation.
It is the first time the bond will be floated. It will be a big test and a measure of how long investors are willing to wait.
The timing couldn’t be trickier
Right now, the economy is in a delicate place. Inflation hasn’t quite settled. Government debt is already high, and the global economy is wobbling.
To keep the shilling stable and curb inflation, Bank of Uganda has kept interest rates high.
High interest rates make it more expensive for government to borrow. It has to offer investors higher returns for them to buy bonds.
The upside? Investors win. With bonds offering juicy interest, especially over long periods, they lock in serious earnings, backed by government’s promise to pay.
Very few countries offer such long-term investments in their local currency.
But those that do – like Kenya and South Africa – use them to grow deeper financial markets and attract long-term investors.
Uganda’s longest bond has been 20 years, introduced in 2020 and maturing in 2043. It has slowly gained fans and offers important lessons for the 25-year issue.
What the 20-year bond tells us
As of the first quarter of 2025, the 20-year bond offered the highest yield across all maturities – a solid 17.9 percent, according to data from BoU.
Longer-term bonds usually pay more because they carry more uncertainty: inflation, depreciation, and political changes.
But the jump from the 15-year bond (17.3 percent) to the 20-year bond (17.9 percent) is 0.6 percent, a noticeable increase, just for five extra years.
It’s the market’s way of saying, ‘we are confident about medium-term… but beyond 2045, we need some more to feel comfortable.’ Investors are starting to factor in big unknowns: leadership transitions, economic turbulence, or policy shifts
By contrast, the jump from the 10-year (17.1 percent) to the 15-year (17.3 percent) is just 0.2 points, much less, which suggests investors feel relatively confident about medium-term, but start to hesitate as timelines stretch.
What is moving the market?
Looking back to the fourth quarter of 2024, the 20-year bond yield rose by 0.7 percent, the same as seen in the five-year and 10-year bonds. This tells us yields across the board are shifting together, and the 20-year bond isn’t reacting wildly.
It’s high – but stable, a sign that the market has priced in long-term risks and is holding steady.
Shorter-term bonds saw even bigger jumps. The two-year and five-year yields rose by 2.8 and 2.1 percent, respectively, showing that government borrowing has pushed short-term rates up fast.
Meanwhile, long-term rates are already elevated, and many portfolio managers believe these may be nearing their peak, unless something major improves Uganda’s long-term economic outlook.
Put it all together, and here’s what emerges. The 20-year bond has become Uganda’s benchmark for long-term risk pricing.
Its yield has crept up slower than others, suggesting investors expect rates to fall after the 2026 elections. All this sets the stage for the 25-year bond’s big debut.
If the 20-year is paying 17.9 percent, investors will likely expect 18.5 percent or more for the 25-year, based on past behaviour, to cover the extra risk of going further into the unknown.
Why this matters
At first glance, a 25-year bond might look like just a longer version of the 10- or 15-year bond.
But it’s more than a stretch. Think of it as government’s trading in short sprints for a marathon. And in doing so, it’s redrawing the boundaries of Uganda’s financial map. Long-term bonds aren’t just about time – they are about alignment.
They let governments spread debt repayments across decades, easing the burden of frequent refinancing and shielding budgets from short-term storms.
Even better, they match the lifespan of the really big stuff – highways and power dams. Projects that outlive politicians.
In global markets, 30 and 50-year bonds are common, a sign that both the state and investors are thinking beyond quarterly results and election cycles.
So, for Uganda to introduce a 25-year bond now, when interest rates are steep, inflation is still biting, and money is tight, is both gutsy and calculated.
“It allows government to lock in capital at today’s rates before markets get even bumpier,” says Alex Kakande, a financial markets consultant. “And for investors, it’s a rare shot at earning high, fixed returns for an entire generation.”
The yield tug-of-war
The real drama of the 25-year bond lies in how its interest rate will be set. Since this is a new bond, there’s no past pricing to guide the market.
That means there won’t be any discount or premium applied upfront – the yield-to-maturity that investors bid on auction day will automatically become the fixed interest for the next 25 years.
And that’s where the stakes rise. Recently, investors in Uganda’s longer-term bonds – like the 20-year paper maturing in 2043 – have been earning yields above 17.5 percent, with some private deals reaching 18.25 percent.
That’s set high expectations: several institutional investors spoken to for this article hope the 25-year bond could yield 19 percent or even 20 percent.
Locking in a double-digit return backed by government until 2050? That’s a rare prize. But government might not want to pay that price.
“If bids push yields too high, beyond what the Ministry of Finance or Bank of Uganda considers reasonable, they can simply reject the auction,” Kakande says.
The Finance Ministry is probably asking itself questions like – Is it worth locking in expensive debt for 25 years to raise Shs500b now?
Or is it better to wait, reject high bids, and try again when borrowing costs come down?
It’s a subtle power game between government and the market. On one side, government wants to borrow cheaply in a tough, high-rate environment.
On the other hand, the primary dealer banks that dominate the bond market act as gatekeepers, setting the price through competitive bids.
If they bid too low, the bond won’t sell. Bid too high, and government walks away. Institutional investors understand this well, but many retail investors – especially those new to bonds – don’t.
When interest rates rise, newly issued bonds pay higher coupons. That makes existing bonds with lower coupons less attractive.
So, if you bought a bond in 2023 at a lower rate and try to sell now, you will likely have to lower the price to compete, which is a loss.
That is why the current high-interest-rate environment is a great time to buy bonds, but risky to sell.
“Savvy investors are playing the long game, positioning to sell in 2026 or 2027, when interest rates are expected to ease post-election. That is when the bonds you bought cheaply today could appreciate, delivering not just steady payments, but also capital gains,” Kakande notes.
Turning point
Regardless of the final interest, this auction will mark a turning point. A 25-year bond is a bet, not just on returns, but on resilience.
It tests whether Uganda’s capital markets can handle long-term instruments with deep liquidity.
It also tests whether banks and institutional investors can model risk beyond 2040.
And it challenges retail investors to think like pension funds — slowly, strategically, and with discipline.
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