THE global bond market was valued at US$141,34 trillion in 2024. It is expected to reach US$166,81 trillion by 2030, with a compound annual growth rate of 2,8% during the forecast period. The bond market, segmented by issuer, type and sector, plays a pivotal role in the global financial landscape, offering investment options for diverse risk appetites and financial goals. However, in Zimbabwe, the market has been constrained over the last few years due to squeezed liquidity and high inflation. Our assistant editor, Mthandazo Nyoni (MN), spoke with Mehluli Mpofu (MM), chairperson of the Bond Market Association of Zimbabwe (BMAZ), about a wide range of issues concerning the local bond market. Below are excerpts of the interview:
MN: How would you describe the current performance of Zimbabwe’s bond market compared to previous years, particularly since the introduction of the Zimbabwe Gold currency?
MM: Activity in the fixed-income space has remained constrained, particularly following the tightening of the monetary policy framework in September 2024, which has squeezed liquidity from the market.
We have also not seen any new listings, while concerns remain around inflation and, therefore, associated pricing to realise real returns. Furthermore, there has not been a public auction of Treasury Bills, which has made it difficult for price discovery and the establishment of a yield curve.
We are aware that there is a secondary market, with over-the-counter trading on a bilateral basis. Therefore, the bond market has been constrained over the last few years due to the factors mentioned above.
MN: What steps are being taken to restore investor confidence in the bond market, especially given the historical challenges of macroeconomic instability?
MM: Investor confidence will emanate from a stable macroeconomic environment. To this end, we have seen a raft of measures being introduced by policymakers. A stable macro-economic environment will boost investor confidence.
To this end, policymakers such as the central bank have introduced a raft of measures to stabilise inflation. A stable inflation environment is key to the success of the bond market as it brings certainty to future income streams for investors.
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Additionally, the market has taken steps to resuscitate the bond market by establishing the BMAZ. This will promote the development of the fixed-income market.
MN: How liquid is the bond market currently, and what measures are in place to improve liquidity and encourage more active trading?
MM: Bond market trading can occur on listed exchanges and over-the-counter on a bilateral basis. While activity on the listed exchange is limited, there is activity on the secondary market.
However, because such trades occur at the individual level, it is difficult to aggregate these trades over-the-counter on a bilateral basis. While activity on the listed exchange is limited, there is activity on the secondary market.
However, because such trades occur at the individual level, it is difficult to aggregate them for better market insights. As such, it is important to resuscitate the public auctions of Treasury Bills issued by the government through the Reserve Bank of Zimbabwe. This would assist in establishing a yield curve, which can help provide a benchmark for pricing other borrower needs.
Our understanding is that the Government of Zimbabwe has taken steps to have some of its instruments listed, and we believe this will contribute significantly to the liquidity of the bond market.
MN: What is the current size of Zimbabwe’s bond market in terms of market capitalisation, and how does this compare to other sectors such as the stock market?
MM: We currently have the Karo Bond listed on the Victoria Falls Stock Exchange (VFEX), which raised US$36,8 million. This is the first and only listed debt on the VFEX, and we are hopeful to see more listings as the environment stabilises.
As indicated earlier, there are other government bond instruments which are not listed.
MN: What types of bonds (for example, government, corporate, green bonds) are currently available and how do they contribute to the overall size and depth of the market?
MM: Currently, the market is dominated by government bonds, with some activity for corporate bonds and commercial paper. A growing universe of such instruments provides investors with options to choose those that meet their risk appetite.
MN: What regulatory or policy challenges are currently hindering the growth of the bond market, and how is the association working with stakeholders to address these?
MM: We are currently happy with the government’s efforts to list its instruments on the stock market, and this is a positive policy shift.
MN: What are the main barriers to broader participation in the bond market, both from local and foreign investors and how can these be overcome?
MM: For local investors, the ability to easily find a buyer on the secondary market and realise real returns on the investment are key concerns. For foreign investors, concerns around the ability to repatriate sale proceeds and realise real returns are key considerations.
Portfolio investment should be given priority on repatriation to restore confidence in the bond market, and secondly, listing most government instruments on the exchange can create an open, transparent market.
MN: Are there plans to introduce new bond products, such as diaspora bonds or infrastructure bonds, to diversify the market and attract more investors?
MM: Given the challenges in the local market, there is an opportunity to issue infrastructure, diaspora, sustainable, and green bonds.
In the case of green bonds, they present opportunities to access international markets, as they play a pivotal role in achieving a low carbon, sustainable future. Green bonds can be utilised to achieve carbon credits indirectly by financing projects and activities that generate measurable reductions in carbon emissions. These projects, funded through green bonds, can qualify for carbon credits under established carbon offset schemes.
MN: What is your long-term vision for the bond market in Zimbabwe, and what role do you see it playing in the country’s economic growth and development over the next decade?
MM: My long-term vision for the bond market in Zimbabwe is to establish it as a robust, transparent and efficient platform for mobilising capital to drive economic growth and national development.
Over the next decade, I envision a deepened and diversified bond market that not only provides a reliable source of funding for borrowers, but also offers investors a secure and attractive avenue for long-term wealth creation.
The bond market is uniquely positioned to play a transformative role in Zimbabwe's economy by bridging the gap between the need for capital by governments, corporates and other institutions and the need for safe and reliable investment opportunities by both domestic and international investors.
I also see an opportunity to grow our skills in the fixed income space. These skills will, without doubt, unlock more opportunities in the bond market.
The strong underpinning requirement is a stable and predictable economic environment, and I hope that we will get this key enabler right as a country.
