Uganda's new 25-year Treasury bond has made a dramatic debut, surprising market insiders with a lower-than-expected yield. This move appears to be a deliberate attempt by the government to manage its rising debt costs.

Typically, longer-term bonds offer higher returns to compensate investors for the increased risk. However, the 25-year bond's pioneer auction recorded a yield of 16 percent, which is lower than the 17.65 percent yield on the existing 15-year bond and the 17.5-17.9 percent yield on the 20-year bond trading in the secondary market. This is a significant departure from traditional yield curve pricing trends.

A report from Impala Market Staff dated August 7, 2025 shed light on the central bank's strategy. Despite "overwhelming demand", the Bank of Uganda (BoU) deliberately accepted only a small portion of the bids for the new bond."The limited acceptance... signals a line in the sand," the report states. "The market clearly priced in a higher yield, but BoU refused to validate those levels."According to the report, the BoU's actions were a strategic effort to "shape the yield curve, reinforce policy credibility and manage refinancing costs". By accepting only non-competitive bids, the Ugandan central bank was able to extend the curve without "distorting it".

During the auction on August 6, the 25-year Treasury bond had a total offer of Ush500 billion ($139.7 million). While bids worth Ush851.1 billion ($237.8 million) were submitted, the central bank accepted only a small fraction, totalling Ush57.165 billion ($15.97 million). Market expectations for the bond's debut yield were between 17-18 percent, making the final 16 percent a shock.

Market players are now expressing a mix of shock and uncertainty.

Benoni Okwenje, General Manager for Financial Market Operations at Centenary Bank Uganda Limited, noted that the yield "defies logic". He explained that most investors who were allocated the bond are holding onto it, which is why it's difficult to trade in the secondary market.“The yield registered on that bond was 16 percent, which is lower compared to the 20-year Treasury bond that is currently trading at 17.5-17.9 percent in the secondary market," he said.

George Mulindwa, general manager at GenAfrica Asset Managers Uganda Limited, said the Ministry of Finance is "trying to control debt servicing costs by all means possible".

Both Okwenje and Mulindwa believe the next auction, scheduled for November, will provide much-needed clarity on the bond's pricing.

Mubbale Kabandamawa-Mugalya, General Manager at Sanlam Investments Uganda Limited, added that the market operates on a "willing sellers and buyers" basis, and if the Ministry of Finance sets the yield at 16 percent, the BoU must ensure it fits within the government's debt servicing budget.

Market observers believe the introduction of the 25-year Treasury bond will have a positive effect on pricing dynamics for other long-term financial products, such as corporate bonds and mortgage products with a duration of more than 20 years.

However, for now, the market remains in a state of uncertainty, awaiting the next auction to get a clearer picture of the bond's future.

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