How Tanzanian T-bonds are reshaping investor appetite

TANZANIA’S Treasury bond (T-bond) market is undergoing a transformation as shifting investor preferences, regulatory incentives and monetary tightening reshape demand and pricing dynamics.

After two decades of steady evolution, the market is now marked by rising yields, renewed interest in long-term paper and policy-driven efforts to balance domestic and foreign investor participation.

The trend reflects broader macroeconomic dynamics and changing preferences among key institutional investors. From 2000 to 2025, Treasury bond yields have mirrored shifts in investor confidence, inflation and monetary tightening, with notable inflection points along the way. In the early 2000s, yields were on a steady decline, aided by improving macroeconomic stability.

By 2003, 2-year bonds yielded around 5–6 per cent, while 10-year bonds fetched about 8 per cent—down from double-digit levels in the late 1990s.

According to Imani Minja, a close observer of capital markets, bond markets aren’t just financial instruments—they’re confidence metres.

“When investors lock in for 10 or 15 years, they’re making a statement about trust in the state, not just the returns,” Mr Minja said.

So, what’s driving this growing appetite for long-term debt? A few things. First, inflation has been relatively stable compared to the turbulent mid2010s. Second, the government has demonstrated improved debt servicing capacity and transparency.

Third, there’s growing investor confidence in the country’s fiscal reforms and long-term growth agenda. Still, the rising yields on longer bonds hint at something deeper: investors want reward, but they also demand assurance.

They’re pricing in risks— currency stability, global rate shifts, and budget deficits—but they’re also seeing long-term opportunity. Beatus Mlingi, a Dar es Salaam-based debt market analyst said back then, the market was dominated by a few local banks and pension funds.

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“Shorter maturities were the norm, as demand for longer tenors was almost nonexistent,” Mr Mlingi said.

That began to change in the 2010s. With confidence growing and inflation under control, investors warmed to longer-term bonds. The 2011 launch of the 15-year bond was a turning point, oversubscribed by domestic institutions.

The move aligned with the government’s strategy to reduce refinancing risk and deepen the debt market. Still, yields have not moved in a straight line. In 2016–2017, bond yields spiked sharply.

The 2-year bond hit 17.5 per cent by March 2016, while the 5-year peaked at 18 per cent. “Short-term yields rose rapidly, driven by tight liquidity and strategic bidding by large banks.

“At one point, the curve inverted at the short end, reflecting acute market stress,” said Mr Mlingi.

Investor sentiment turned more positive by late 2017. The 2-year yield fell to 11.8 per cent and 10-year yields dropped to about 15.9 per cent. During 2018–2019, the curve steepened again. Short-term yields dropped to high single digits, while longer tenors remained elevated.

The government’s disciplined fiscal and monetary stance helped lower borrowing costs. By 2022, the 2-year bond yielded about 7.6 per cent, while 10-year bonds hovered around 10 per cent. But the low-yield window did not last. Global interest rate hikes, coupled with domestic funding needs, pushed yields higher again from 2022. By early 2025, the Bank of Tanzania increased the coupon on 10-year bonds to 14 per cent, up from previous levels of 10.25–11.44 per cent. The objective: reignite investor appetite for medium-term debt.

“Medium-term bonds had started losing appeal. The 10-year needed to compete with the 15- and 20-year issues that were offering about 15 per cent,” Mr Mlingi said.

“By raising the coupon, the central bank sent a clear signal—it wants a balanced curve with sustained investor interest across all maturities.” The yield curve has since flattened. While 2-year yields remained in the low double digits, 10-year yields surged to nearly match those of longer tenors. Investor preferences have also grown more segmented.

According to Ahmed Nganya, Manager, Advisory and Capital Markets at Vertex International Securities, appetite is shaped by coupon levels, yields and regulatory demands.

“For commercial banks, bond appetite is split between short and long term,” Mr Nganya said. “General insurers lean toward short-term bonds due to liquidity needs, while life insurers prefer long-term holdings to match their liability structure.” Investment firms, meanwhile, are driven by returns. “They go where the yield is most attractive, regardless of the maturity,” he said. The primary market has seen a visible evolution.

In the early 2000s, the government struggled to offload 7- and 10-year bonds. By 2011, the tide had turned. Institutional investors, particularly pension funds, became dominant buyers of long-term bonds. By 2024, demand was strongest for 15-, 20-, and 25-year maturities, especially when yields reached the 15 per cent range.

Medium-term paper saw less interest—prompting the Bank of Tanzania to intervene. The secondary market has matured, though buy-and-hold remains common. The 15-year bond was the most traded in 2017, with foreign investors from the East African region participating actively. From 2022 to 2024, long-term bonds continued to dominate trading.

“Foreign activity remains constrained due to regulatory restrictions,” Mr Mlingi said.

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“But upcoming reforms in 2025, including market determined coupon rates and more transparency, could attract non-EAC investors.” Macroeconomic stability has underpinned much of this evolution. Inflation has remained largely in check since 2017. Currency depreciation, though steady, has not destabilised the market. The domestic nature of debt financing has helped insulate the bond market from external shocks. “Stable inflation means real returns remain attractive. That’s why investors are willing to lock in capital for 20 years,” Mr Mlingi added.

With prudent fiscal management, Tanzania has avoided the kind of debt distress seen in other markets. That credibility has translated into continued demand for government paper.

As 2025 unfolds, the focus is now on how the market will absorb a potentially broader investor base. If foreign participation increases and coupon rates remain competitive, Tanzania’s bond market may reach a new stage of maturity.

“The yield adjustments we’re seeing in the 10-year space show how the government is recalibrating its issuance strategy,” said Mr Mlingi.

“It’s all about staying competitive—both locally and, potentially, internationally.” In this environment, bond demand serves as a kind of economic pulse. As Minja puts it: “For CEOs, bankers and policymakers, watching how bond appetite shifts is like reading a pulse. It’s quiet but revealing.”