A modest increase in the interest rate earned on Uganda’s 25-year Treasury bond last month represents a small victory for investors and also exposes difficulties associated with taming the country’s debt yield curve, amid rising borrowing costs, experts say.

 

The bond, Uganda’s newest government debt security, was unveiled to investors in the first quarter of FY2025/26. This debt instrument registered a yield of 16 percent during its pioneer auction in August 2025, an outcome that puzzled investors and bond traders.

Its yield fell below the interest rate earned on the 20-year treasury bond during the same period; an awkward situation that defied trading fundamentals.

The 20-year Treasury bond bore a yield of 17.5 percent in August, according to trading reports, a scenario that contradicted traditional pricing dynamics that offer higher interest rates to longer-term debt securities.

And the results of a treasury bond auction held on November 26, 2025 show that the 25-year treasury bond recorded a yield of 17.95 percent while the amount offered stood at Ush350 billion ($97 million).

In comparison, the 15-year treasury bond registered a yield of 17.75 percent during the same auction, the data shows.

Total bids received against the 25-year treasury bond amounted to Ush1.232 trillion ($341.9 million) while the value of bids accepted stood at Ush610.8 billion ($169.5 million).

Dr Kenneth Egesa, BoU’s communications director, admitted that The first 25-year treasury bond auction had “quite an abnormal outcome.”“If you don’t give investors what they need, you might not get enough money from the market. You could also lose most of the foreign investors to peer markets that offer stronger macroeconomic fundamentals, debt yields and other financial incentives. We have also realised that information flows faster and wider in the market these days than many years ago. Almost everyone gets to know what is happening in the market instead of one privileged individual,” he said.

Benoni Okwenje, general manager for financial market operations at Centenary Bank Uganda, said there was outcry in the market in August about BoU’s rejection of many competitive bids in the first 25-year treasury bond auction while some uncompetitive bids were accepted.“But lots of competitive bids that were rejected last time were accepted this time round and this led to a higher acceptance amount in the second 25-year treasury bond auction, compared to the pioneer auction. The 17.95 percent yield clearly matches investor expectations, but such high yields also imply increased debt servicing costs that will be incurred by government later on. The lessons picked from this situation can be figured out by BoU.”Charles Katongole, a senior executive at Standard Chartered Bank Uganda, observed that the first 25-year treasury bond auction produced “a very odd result.”Read: Revenue shortfalls, rising costs push Uganda into bond market uncertainty“But whenever government needs money badly, it responds well to investor demands, and that explains why the yield on the 25-year treasury bond rose to 17.95 percent last month. However, yields have risen quite significantly and that means higher borrowing costs for government later on.“I see debt yields remaining stable in the first quarter of 2026 amidst the election fever and the widening budget deficit, unless the US softens its monetary policy next year which might encourage offshore investors to strengthen their presence in this market and eventually translates into higher yields,” he said.

Uganda’s overall public debt portfolio rose from $23.7 billion by close of June 2023 to $25.6 billion by end of June 2024. The country’s public debt burden stood at $32.3 billion by close of June 2025, Finance ministry data shows.

The ratio of interest payments to revenue stood at 31.1 percent in financial year 2024/25 and is projected at 30.4 percent by close of financial year 2025/26.

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