Government Bonds: Are Retailers Discovering Uganda’s Open Secret?

Maurus remembers it like it was yesterday, when he was a teenage boy, listening to his father come home one evening in the 1990s shaking his head in wonder. 

“They are paying more than 30% on treasury bills,” he said, incredulous. 

Inflation was rampant then, the economy struggling to find its feet, and those astronomical interest rates were the government’s way of trying to mop up liquidity and restore order. Maurus didn’t fully grasp the mechanics, but the figure stayed with him. It was proof that money could be made to work for you if only you knew how.

Decades later, the boy has become a man, a retiree, who lives partly off his bond portfolio. Twice a year, like clockwork, he receives coupon payments from the bonds he has accumulated. That semi-annual income is now one of the pillars of his retirement finances, giving him certainty that no dividend stock, fixed deposit, or real estate venture could match. 

“It’s the most open secret in our economy,” he says. “I don’t understand why more people are not jumping on the bandwagon.” 

He adds with a grin that bonds have become his favourite form of collateral. “No land title headaches, no valuation disputes. The bank looks at my holdings, and in a day or two, the money is in my account. Hustle-free.”

The changing face of bonds

What was once the preserve of commercial banks, the National Social Security Fund (NSSF), insurers and a handful of offshore investors is slowly being discovered by ordinary Ugandans. Retail participation in the government securities market, almost negligible when the first Treasury bonds were introduced in 2004, is today carving out a visible space. Teachers, SACCOs, salaried professionals, and retirees like Maurus are learning that government paper can be more than just a line item in the budget speech.

The reforms have been gradual but meaningful. First came the introduction of non-competitive bids, lowering the entry ticket to just UGX 100,000; then the dematerialisation of bonds, replacing clumsy paper certificates with electronic records in the Securities Central Depository; and most recently, the retail windows through commercial banks, some of them already moving toward mobile-based access. These changes opened the door that had long been bolted.

Once through that door, investors found something startling — the best returns in the market. A 10-year bond yielding more than 15%, against inflation running at under 5%, offers real returns that crush what you get from fixed deposits, or rental property. The paradox of our times is that the “risk-free” asset is beating the risk assets at their own game.

The 25-year bond: A market comes of age

It was against this backdrop that the government launched its boldest move yet—the debut of a 25-year Treasury bond in August 2025. For the first time, investors could lend to the state for a quarter of a century. The target was UGX 500 billion. Demand was feverish: bids worth UGX851 billion poured in. That kind of oversubscription would ordinarily suggest a red-hot appetite. But here came the twist.

Bank of Uganda accepted only UGX 57 billion of the bids. Over 90% of the money on offer was turned away. The cut-off yield was set at 16%. To many observers, that was a surprise. The 15-year bond offered in the same auction had cleared at 17.65%, and the 20-year was not far behind. Market chatter had placed the likely yield of the 25-year in the 17–18% range. Yet here was the government anchoring it at 16%, effectively telling investors it would not pay more just because they demanded it.

The signal was clear. The government wanted to lengthen its debt maturities to reduce refinancing risk, but not at any cost. It was prepared to let bids go rather than saddle itself with punitive rates. For investors, the message was equally blunt: the days of automatic yield premiums for longer maturities may be fading.

Maurus remembers it like it was yesterday, when he was a teenage boy, listening to his father come home one evening in the 1990s shaking his head in wonder. 

“They are paying more than 30% on treasury bills,” he said, incredulous. 

Inflation was rampant then, the economy struggling to find its feet, and those astronomical interest rates were the government’s way of trying to mop up liquidity and restore order. Maurus didn’t fully grasp the mechanics, but the figure stayed with him. It was proof that money could be made to work for you if only you knew how.

Decades later, the boy has become a man, a retiree, who lives partly off his bond portfolio. Twice a year, like clockwork, he receives coupon payments from the bonds he has accumulated. That semi-annual income is now one of the pillars of his retirement finances, giving him certainty that no dividend stock, fixed deposit, or real estate venture could match. 

“It’s the most open secret in our economy,” he says. “I don’t understand why more people are not jumping on the bandwagon.” 

He adds with a grin that bonds have become his favourite form of collateral. “No land title headaches, no valuation disputes. The bank looks at my holdings, and in a day or two, the money is in my account. Hustle-free.”

The changing face of bonds

What was once the preserve of commercial banks, the National Social Security Fund (NSSF), insurers and a handful of offshore investors is slowly being discovered by ordinary Ugandans. Retail participation in the government securities market, almost negligible when the first Treasury bonds were introduced in 2004, is today carving out a visible space. Teachers, SACCOs, salaried professionals, and retirees like Maurus are learning that government paper can be more than just a line item in the budget speech.

The reforms have been gradual but meaningful. First came the introduction of non-competitive bids, lowering the entry ticket to just UGX 100,000; then the dematerialisation of bonds, replacing clumsy paper certificates with electronic records in the Securities Central Depository; and most recently, the retail windows through commercial banks, some of them already moving toward mobile-based access. These changes opened the door that had long been bolted.

Once through that door, investors found something startling — the best returns in the market. A 10-year bond yielding more than 15%, against inflation running at under 5%, offers real returns that crush what you get from fixed deposits, or rental property. The paradox of our times is that the “risk-free” asset is beating the risk assets at their own game.

The 25-year bond: A market comes of age

It was against this backdrop that the government launched its boldest move yet—the debut of a 25-year Treasury bond in August 2025. For the first time, investors could lend to the state for a quarter of a century. The target was UGX 500 billion. Demand was feverish: bids worth UGX851 billion poured in. That kind of oversubscription would ordinarily suggest a red-hot appetite. But here came the twist.

Bank of Uganda accepted only UGX 57 billion of the bids. Over 90% of the money on offer was turned away. The cut-off yield was set at 16%. To many observers, that was a surprise. The 15-year bond offered in the same auction had cleared at 17.65%, and the 20-year was not far behind. Market chatter had placed the likely yield of the 25-year in the 17–18% range. Yet here was the government anchoring it at 16%, effectively telling investors it would not pay more just because they demanded it.

The signal was clear. The government wanted to lengthen its debt maturities to reduce refinancing risk, but not at any cost. It was prepared to let bids go rather than saddle itself with punitive rates. For investors, the message was equally blunt: the days of automatic yield premiums for longer maturities may be fading.

The meaning for retail

For retail investors like Maurus, the auction was a lesson in the politics of yield. On the one hand, 16% is still spectacular—more than double inflation, and leagues ahead of bank deposits or dividend stocks. On the other, the oversubscription and high rejection rate showed that demand is deepening, and competition for these instruments is stiff. Retail investors will have to be sharper, and more deliberate in how they place their bids.

However, the very existence of the 25-year bond opens new horizons for retail savers. It is a product tailor-made for those thinking long term: retirement, children’s education, intergenerational wealth. Imagine a young professional locking in 16% for 25 years. By the time she retires, her coupons alone would have compounded into a handsome stream of income.

And as Maurus notes, the collateral value of such long bonds is immense. Banks are more than happy to lend against them. They carry less valuation drama than land, and less volatility than shares. For a small business owner or retiree, that flexibility is invaluable.

The 25-year bond also speaks directly to institutional investors. Their liabilities stretch decades into the future. For them, short-term paper creates a mismatch: they have to keep rolling it over while their obligations remain fixed and far away. A 25-year bond solves that problem neatly, aligning assets and liabilities.

No wonder, then, that institutions piled in. But their expectations of higher yields were thwarted. Many will now adjust strategies, realising that the government will anchor long-dated yields closer to its comfort zone. That discipline may, in the long run, stabilise borrowing costs and deepen the market.

Why the yield was lower

Why did the 25-year yield come in below expectations? Several factors explain this. The government was selective, rejecting bids it considered too expensive. Some investors, particularly long-horizon funds, may believe inflation will remain moderate, making 16% attractive in real terms. Others may simply value the predictability of long-dated cash flows enough to accept a smaller premium. And some may see the prestige of holding a “first of its kind” instrument as worth the concession.

Whatever the reason, the outcome establishes a precedent. Bonds in Uganda may no longer automatically command higher rates just because they are placed for a longer time. The market will now price them with more nuance, balancing demand, government resolve, and expectations about macroeconomic stability.

If the story of the 25-year bond is about institutions and state strategy, the longer story of the past two decades is retail’s slow but steady entry into the bond market. In 2004, retail held virtually nothing. By the mid-2010s, it was edging toward 2–3%. Today, estimates place it between 5–8%.

Those percentages may look small, but in absolute terms they are hefty. With domestic bonds standing at UGX52.6 trillion as of June 2025, even a five percent retail share is worth over UGX2.5 trillion. That’s money in the hands of teachers, SACCOs, boda groups, salaried professionals, retirees and more.

It has taken reforms to get here, but also a shift in psychology. When people realise they can earn double-digit returns safely, they start to question why they should leave money idling in accounts that barely cover inflation. Slowly, bonds are entering the vocabulary of everyday savers.

The bigger picture

This retail drift has consequences beyond individual returns. A broader investor base makes the market more resilient. Higher domestic participation raises the national savings rate, which has lagged stubbornly behind regional peers. Greater reliance on domestic bonds reduces vulnerability to external shocks and fickle foreign creditors, and every retail investor who learns how to buy a bond acquires financial literacy that can spill over into equities, unit trusts, and even entrepreneurship.

The government benefits too. A steady stream of domestic savings to tap means less pressure to borrow abroad on onerous terms. It also reduces refinancing risks. The 25-year bond, even at just UGX57 billion accepted, marks a milestone in extending the maturity profile of public debt.

Risks on the horizon

It would be naïve, however, to imagine this is a one-way street to prosperity. Crowding out is a risk. When government paper yields 16%, why should banks lend to businesses at similar or lower rates with far greater risk? Credit to the private sector may suffer. Debt sustainability is another worry. Domestic debt already tops UGX 60 trillion. Servicing it at double-digit rates could become a fiscal millstone.

For retail investors, liquidity is a practical issue. Selling a long-dated bond in the secondary market is not always easy. And while inflation is tame today, it has a habit of surprising. Should it return to double digits, real returns would evaporate quickly.

Yet the trajectory remains promising. Technology is set to make bond purchases even easier. Uganda may soon see a mobile-based platform like Kenya’s M-Akiba, where buying a government bond is as simple as topping up airtime. Product innovation is likely such as retail-friendly savings bonds with shorter maturities, simpler redemption, and perhaps even tax breaks for small investors. Financial education campaigns are multiplying, slowly pulling bonds into the mainstream consciousness.

The regional angle matters too. East Africa’s capital markets are inching toward integration. A Ugandan investor might one day seamlessly buy Kenyan or Tanzanian bonds, and vice versa, creating deeper pools and more choice.

If these trends hold, retail participation could double or triple within the decade. By 2030, Ugandans could hold 10–15% of the bond market directly, transforming it from an institutional playground into a genuine mass savings vehicle.

The long-term bond as a turning point

For Maurus, the debut of the 25-year bond was both validation and revelation, validation that the government was serious about lengthening maturities, and creating space for investors like him to secure long-term streams of income. It was revelation that the market was maturing to the point where oversubscription and yield anchoring were realities, not abstractions.

He sees the lower-than-expected yield as a sign that the government is learning to balance cost with access. He sees the oversubscription as proof that demand is real, both institutional and retail. And he sees his own experience — semi-annual coupons, collateral value, steady income — as evidence that bonds are not just for the few, but could be the foundation of national wealth building.

The Ugandan bond market has come a long way from the days of 30% teasury bills. It is deeper, more sophisticated, and increasingly inclusive. Retail participation, once negligible, is rising steadily. Bonds now offer the best returns in the market, outpacing inflation and outperforming riskier assets.

Maurus, marvels that others still hesitate. Perhaps, with each new auction, that information is becoming a little less secret, and a little more the shared story of Uganda’s financial future.