Local Currency Bonds Gain Ground in East and Southern Africa
- Jan 21
- 11 min read
Local-currency bond markets in East and Southern Africa are experiencing a surge of interest from both domestic and foreign investors. Countries such as Kenya, Zambia, Tanzania, and Uganda are seeing strong demand in recent government debt auctions, marking a shift toward deeper local financing and reduced reliance on foreign-currency borrowing. Financial authorities and international institutions are seizing this momentum to broaden yield curves, improve market infrastructure, and promote regional integration – steps seen as vital for long-term fiscal sustainability.
Rising Demand from Domestic and Foreign Investors
Global investors have poured into frontier-market local bonds in search of yield, while regional investors (banks, pension funds, insurers) also ramp up participation. Uganda, for example, has attracted record offshore investment into its domestic debt: more than $2 billion of Ugandan government bonds are now held by foreign investors – roughly 12% of its total domestic debt. This trend is mirrored across similar markets as yield-hungry funds look beyond traditional emerging economies. Portfolio managers note a more diverse investor base entering these arenas, including some global hedge funds alongside the usual frontier specialists. Even Zambia – in the midst of debt restructuring – has seen its local bonds perform well, as investor confidence slowly returns. Kenya’s Treasury bonds, for their part, have drawn significant interest from local pension funds and a number of global frontier asset managers, underscoring the widening appeal of East African debt.
Domestic buyers remain central to these markets, often mandated to invest in “risk-free” government paper. In Uganda, local institutions already hold a large share of government debt and continue to support auctions, motivated by attractive yields and regulatory incentives. The confluence of robust local and foreign demand is boosting government coffers and helping to finance budgets in local currency. However, officials are mindful of the risks: “hot money” inflows can leave as quickly as they came, and domestic balance sheets could face volatility if global conditions tighten. For now, though, the momentum is clearly on the side of local-currency bond markets, as governments and investors capitalize on supportive conditions.
Successful Auctions and Improved Yield Curves
Recent bond auctions across the region reflect the strong appetite and improving depth of local markets. In Uganda, a late-2025 Treasury bill auction was oversubscribed by more than seven times, with UGX 567 billion in bids for just UGX 75 billion offered (the 364-day T-bill alone absorbed UGX 427 billion as institutions rushed to lock in high rates). Tanzania’s government raised an infrastructure bond nicknamed the “Samia bond” that drew 115% of its target amount – a notably oversubscribed sale – alongside issuing its first sovereign sukuk, signaling new investor segments being tapped.
Kenya has also seen vigorous demand. In January 2026, the Central Bank of Kenya conducted a bond switch auction, inviting holders of a 10-year bond to exchange into a new 15-year issue. Investors placed KSh 26.5 billion in bids against a KSh 20 billion offer, a 132% oversubscription, as many were eager to extend portfolio duration and lock in a 13.94% coupon amid expectations of falling yields. The result allowed Kenya to lengthen its maturity profile (the new bond comes due in 2037) and illustrated growing investor willingness to move beyond the traditional 3- to 5-year tenors.
In Zambia, which has historically faced high borrowing costs, recent auctions similarly indicate sustained demand and a stabilizing yield curve. The Bank of Zambia’s November 2025 tender offered bonds ranging from 2-year to 15-year maturities; yields came in at 15.0% for 2-year and about 18.99% for 15-year, with investors buying across the curve. Analysts noted that medium- and long-term Zambian debt drew confidence from banks, institutional investors, and even some retail buyers, suggesting that liquidity – while still tight – is sufficient to support a spectrum of tenors. A smoother, more extended yield curve is emerging in these markets, reflecting improved price discovery and investor confidence in longer-dated local instruments.
Technical Support and Market Deepening Initiatives
The development of local bond markets has been bolstered by technical assistance from international financial institutions. The IMF and World Bank are actively supporting market deepening programs that help governments build credible yield curves and liquid secondary markets. For instance, the IMF’s East AFRITAC (East Africa Regional Technical Assistance Center) is running workshops on developing the secondary market for government securities, aimed at instilling a strategic approach to domestic debt market reform. Such capacity-building efforts prepare finance ministry and central bank officials to implement best practices in debt issuance, auction techniques, and market regulation.
World Bank Group initiatives like the Joint Capital Markets Program (J-CAP) have also provided advisory services in countries like Kenya to strengthen local capital market infrastructure, from regulatory frameworks to investor base expansion. The African Development Bank (AfDB), for its part, has launched an African Domestic Bond Fund to encourage the development of local bond markets, and is working alongside the African Union to standardize issuance and reporting practices across countries. These efforts to improve transparency, comparability, and governance are gradually increasing investor trust.
Indeed, many central banks have upgraded their monetary policy frameworks and coordination with debt management offices, and reforms such as expanding pension funds (in Kenya and Nigeria) have created pools of long-term capital that can be invested in government bonds. This institutional evolution is helping to broaden the investor base and support a healthier, more liquid market where prices reflect fundamentals.
Regional Integration: EAC and SADC Harmonization
Regional blocs are also playing a key role in harmonizing bond market practices and integrating financial markets. In the East African Community (EAC) – which includes Kenya, Uganda, Tanzania, Rwanda, and others – there is a concerted push toward a single capital market as part of the drive toward monetary union. The EAC’s capital markets integration plan envisions a unified market infrastructure that offers issuers access to a wider pool of investors and gives investors the ability to buy securities across borders via a single platform. By merging what are currently small, fragmented markets, the EAC aims to achieve economies of scale, higher liquidity, and more efficient pricing. In practical terms, this means an EAC investor in one member country should eventually be able to seamlessly purchase a government bond issued in another member country, and intermediaries (brokers, dealers) would operate region-wide under common rules. An integrated East African bond market would offer domestic issuers the chance to raise larger amounts of capital and attract greater foreign portfolio investment than any single national market could on its own. Steps toward this include linking trading platforms, harmonizing regulatory standards, and establishing mutual recognition of securities across the EAC.
In Southern Africa, the Southern African Development Community (SADC) has a parallel initiative through the Committee of SADC Stock Exchanges (CoSSE). In late 2024, SADC approved plans for an Interconnectivity Hubthat will link member countries’ trading systems. “This initiative seeks to harmonize listing and trading rules, alongside enhancing block trading in corporate bonds and various currencies,” said CoSSE chairman Collen Tapfumaneyi. A key component is a Smart Order Router (SOR) platform to enable investors – both regional and international – to trade securities (including government and corporate bonds) across SADC markets within a unified framework. By standardizing regulations and connecting exchanges, SADC aims to increase transaction volumes and liquidity, making the region more attractive to portfolio investors. The AfDB has provided funding for this project as well, emphasizing its importance for long-term regional stability and resource mobilization. These regional harmonization efforts in EAC and SADC are expected to improve market accessibility, reduce operational frictions for cross-border investors, and promote best practices in reporting and transparency.
Mitigating FX Risk and Strengthening Fiscal Sustainability
A primary motivation behind expanding local-currency bond markets is to reduce foreign exchange (FX) risk and improve fiscal sustainability. Governments in the region have learned hard lessons about the dangers of the “original sin” – borrowing heavily in foreign currencies. When local currencies depreciate, the burden of external debt can become unsustainable, as seen in past crises. By contrast, borrowing in domestic currency insulates budgets from exchange rate volatility. Well-developed and liquid domestic debt markets act as a buffer when external financing conditions worsen, allowing countries to rely more on internal sources of funding. This shift to local financing is thus a deliberate policy hedge against global financial shocks.
In addition, raising funds locally can often be cheaper over time. As yield curves in these countries improve and lengthen, governments can issue longer-term bonds at stable rates, avoiding the short-term refinancing pressures that come with heavy reliance on short maturities. The ability to extend debt maturities is crucial for managing refinancing risk and smoothing out repayment obligations. Developing credible local markets, according to analysts, enables governments to lengthen tenors while keeping debt affordable, thereby enhancing overall debt sustainability. For example, Kenya’s active domestic liability management (through bond switches and buy-backs) is aimed at reducing rollover risk and managing the cost of debt over the long run. Similarly, Uganda has articulated plans to trim domestic borrowing growth in upcoming budgets to ensure debt remains within sustainable levels, a strategy made feasible by strong demand that keeps local borrowing costs in check.
Reducing FX exposure also reassures investors and credit rating agencies. A steadier local currency and a rising share of local-currency debt can improve a country’s credit outlook. Indeed, Uganda’s improved macroeconomic trends – including a 5% appreciation of the shilling in the first ten months of 2025 – led S&P Global Ratings to revise its outlook to positive. That stability, underpinned by credible monetary policy and funding from domestic markets, signals that governments are less vulnerable to external dollar liquidity conditions. Overall, the push to build domestic bond markets is tied directly to long-term fiscal health: it helps governments avoid over-accumulating foreign debt, manage interest costs better, and invest more predictably in development priorities without the whipsaw of FX movements.
Broadening Horizons: Interest Beyond 3–5 Year Tenors
Another notable development is investors’ growing interest in maturities beyond the traditional 3- to 5-year range. Historically, many African domestic debt markets were dominated by short-term treasury bills and a few medium-term bonds, reflecting investor caution and underdeveloped yield curves. Now, thanks to higher liquidity and confidence, governments are successfully issuing 7-year, 10-year, and even 15- to 20-year bonds that attract substantial bids. The oversubscription of Kenya’s 15-year issue and Zambia’s 15-year tranche in recent auctions are clear indicators that investors are willing to take on longer duration for the right return. In Tanzania as well, authorities have gradually extended maturities and plan to test even longer-dated paper as the market deepens. This extension of the yield curve is a positive sign: it provides governments with funding for long-term projects (like infrastructure) without bunching repayments in the near term, and it offers institutional investors – especially pension funds and insurers – assets that better match their long-term liabilities.
Analysts attribute this shift to a combination of factors. Improved macroeconomic stability and prudent monetary policy have anchored inflation and exchange rates in several countries, giving investors more confidence in long-term local bonds. The maintenance of positive real yields (yields above inflation) has also lured investors to lock in high rates for longer periods. Moreover, regulatory changes have encouraged domestic institutional investors to diversify beyond short-term instruments. For instance, reforms in Kenya’s and Nigeria’s pension sectors created larger pools of patient capital, which has “aided in the development of the yield curve” by enabling these investors to buy and hold longer-term bonds. With banks, fund managers, and even retail buyers showing appetite for longer maturities when the price is right, the yield curves in East and Southern Africa are gradually steepening in a healthy way – higher yields for longer tenors, but not prohibitively high – reflecting balanced risk-reward over time.
International finance experts note that this broadening of maturities is both a result of and a catalyst for market development. As one commentary put it, “developing credible and liquid local markets enables governments to extend maturities, enhance debt sustainability and broaden their investor base.” It’s a virtuous cycle: the more investors trust the market, the more they will commit funds for longer periods, which in turn helps governments stabilize their financing needs and signals to all participants that the market is maturing.
Innovative Platforms and Cross-Border Access (Verī Platform)
Accompanying these market trends is the emergence of financial platforms that facilitate multi-country investment in African fixed income. One example is the Verī Platform, which has been designed to enable transparent, cross-border access to bonds and other securities across Africa’s markets. As local bonds gain global attention, institutional investors face practical hurdles: dealing with multiple custodians, different national regulations, and fragmented reporting when they diversify across countries. Verī addresses these pain points by providing a unified “back-end” infrastructure for portfolio managers. Within a single regulated environment, an institution can use Verī to hold a mix of local assets – from Kenyan government bonds to Zambian corporate paper – alongside international instruments like global bond funds or ETFs.
The platform streamlines onboarding by connecting to multiple local brokers and custodians on behalf of the client, while maintaining one consolidated ledger for all holdings. This means an investor doesn’t need separate accounts in each market; they interact through Verī as a one-stop interface, with the platform handling the cross-border settlement and compliance in the background. Crucially, Verī also offers compliance and reporting tools that give regulators and investors clear visibility into portfolio exposures.
In practice, platforms like Verī allow a domestic investor to pursue yield opportunities abroad while keeping risk within prudent limits. A pension fund in Uganda, for instance, might use Verī to continue participating in high-yield Ugandan government auctions (to a self-imposed limit), and invest the remainder of its assets in a diversified set of bonds and funds from across Africa and globally – all tracked in one place. Such diversification, made feasible by a unified platform, can help local institutions reduce over-exposure to any single government or currency. For foreign investors, the platform provides an easier gateway into frontier markets by simplifying custody and compliance. As cross-border investments grow, the ability to seamlessly navigate different markets’ regulations and settlement systems is a competitive advantage. Verī’s approach of “sitting quietly in the background” to connect African markets with global capital is emblematic of the fintech innovation supporting Africa’s financial deepening.
Outlook: Toward Sustainable Local Debt Markets
The gains in East and Southern Africa’s local bond markets underscore a broader shift in how these countries finance themselves. By tapping domestic savings and attracting foreign portfolio inflows into local-currency instruments, governments are gradually reducing the currency mismatch and rollover risks that have long plagued their finances. The interest in longer-term bonds suggests growing confidence in these economies’ stability over the medium term – a welcome development for infrastructure planning and fiscal management. Regional efforts by bodies like the EAC and SADC to harmonize markets, along with technical support from the IMF and World Bank, are creating an environment where local debt markets can continue to expand in volume and efficiency.
Challenges remain, of course. Secondary market liquidity is still limited in many cases, and a sudden shift in global risk sentiment – say, a strengthening U.S. dollar or a spike in developed-market interest rates – could test the resilience of these nascent markets. Policymakers will need to stay vigilant, ensuring that debt management strategies account for potential outflows and that regulatory frameworks keep pace with innovation. Enhancing market-making, developing repo markets, and improving data transparency are on the to-do list to cement recent progress.
Nonetheless, the trend toward financing in local currency appears to be entrenched. The year 2025 saw emerging and frontier local-currency bond indices outperform and even hit record highs, indicating robust investor appetite. East and Southern African nations are increasingly financing their futures in their own currencies, a strategy that could prove to be their best defense against external shocks. If current conditions persist – moderate global interest rates, investor risk appetite, and improving domestic policies – local bond markets in the region are poised to gain further ground. This bodes well for economic sovereignty: by reducing dependency on external debt and volatile capital flows, countries can take greater charge of their development agendas. In the words of one market expert, it’s “a major pivot” in how Africa approaches debt management – one that prioritizes resilience through local markets.
We are delighted to work together in promoting the beauty and opportunities of Mauritius.
Our websites, Mauritius Life, Veri Global, and Property Finder, are committed to providing valuable information, resources, and services related to Mauritius, its culture, economy, real estate, and more.
Please explore our websites to discover the rich cultural heritage, breathtaking beaches, thriving economy, top-notch real estate listings, investment administration, and knowledge that Mauritius has to offer. Together, we aim to showcase the best of Mauritius and assist you in making informed decisions about living, investing, and experiencing all that this beautiful island has to offer.
Comments