Understanding yields and returns is key to making informed decisions about government bonds. Whether you are comparing tenors, estimating income, or weighing bonds against other investments, knowing how the numbers work puts you in control.
Use our Government Bonds calculator to model returns at any face value, coupon rate, and tenor.
Key terms - yield, coupon rate, and face value
Face value: The amount the government promises to pay you at maturity. Each bond script has a face value of K100. When you invest K100,000, you are buying 1,000 scripts.
Coupon rate: The fixed interest rate paid every six months, calculated on the face value. Since January 2024, the coupon rate equals the yield rate for new issues because bonds are issued at par.
Yield rate: The total rate of return including all coupon payments and the principal. Determined competitively at auction. Under par issuance, yield and coupon rate are the same for new issues. For re-issues, the coupon rate is fixed from the original issue.
How par issuance works
Before January 2024, bonds were sold at a discount. You paid less than the face value, and the difference between what you paid and the face value was part of your return, alongside coupon payments. This made return calculations more complex.
Since January 2024, bonds are issued at par - you pay exactly the face value. Your entire return comes from coupon payments. This makes bonds simpler to understand: what you invest is exactly what you get back at maturity, plus all the coupons along the way.
How coupon payments are calculated
Bonds pay coupons twice a year - every 182 days. Each payment is roughly half the annual coupon rate applied to your face value. The reason it is not exactly half is that 182 days is slightly less than half of 365, so the formula adjusts for this:
Coupon = Face Value x Coupon Rate x (182 / 365)Example: You invest K100,000 in a bond with a 15.80% coupon rate. Each semi-annual payment is:
K100,000 x 15.80% x (182 / 365) = K7,878.36You receive K7,878.36 every six months (before deductions). Over a full year, that is two payments totalling K15,756.72 gross - slightly less than 15.80% of K100,000 because each coupon covers 182 days, not a full half-year of 182.5 days.
Returns by tenor
The following table shows returns on a K100,000 investment at current indicative yields. Each tenor pays two coupons per year. The 5-year tenor is suspended from Q2 2026.
Tenor | Yield | Gross Coupon | WHT (20%) | Fee (1%) | Net Coupon | Annual Net Return |
|---|---|---|---|---|---|---|
2-Year | 14.25% | K7,105.48 | K1,421.10 | K71.05 | K5,613.33 | K11,226.66 |
3-Year | 14.50% | K7,230.14 | K1,446.03 | K72.30 | K5,711.81 | K11,423.62 |
7-Year | 15.80% | K7,878.36 | K1,575.67 | K78.78 | K6,223.91 | K12,447.82 |
10-Year | 16.50% | K8,227.40 | K1,645.48 | K82.27 | K6,499.65 | K12,999.30 |
15-Year | 17.50% | K8,726.03 | K1,745.21 | K87.26 | K6,893.56 | K13,787.12 |
What deductions apply
20% withholding tax on coupon income - deducted at source on each payment date.
1% handling fee on coupon income - also deducted at source on each payment date.
Both are applied to every coupon, not just at maturity.
The combined effect is straightforward:
Net coupon = Gross coupon x (1 - 0.20 - 0.01) = Gross coupon x 0.79Real returns vs nominal returns
The nominal return is the stated yield - what the bond promises to pay. The real return accounts for inflation, telling you how much your purchasing power actually grows.
The Fisher equation gives a good approximation:
Real rate = ((1 + nominal rate) / (1 + inflation rate)) - 1At a 15.80% nominal yield and 7% inflation:
Real rate = ((1 + 0.158) / (1 + 0.07)) - 1 = 0.0822 = 8.22%This matters especially for long-term bonds. Over 15 years, inflation compounds significantly. A 17.50% nominal yield sounds impressive, but if inflation averages 8% over that period, your real return is closer to 8.8%. Still attractive, but worth understanding.
Why longer tenors pay more
Term premium: Compensation for tying up your money longer. Investors demand higher returns for longer commitments.
Inflation risk: There is more uncertainty about inflation over 15 years than over 2 years. Higher yields compensate for this uncertainty.
Liquidity preference: Most investors prefer shorter commitments. Longer bonds must offer better rates to attract buyers.
Benefits of government bonds
Default-free: Backed by the full faith and credit of the Zambian Government.
Paperless: Fully dematerialised - stored electronically in the Central Securities Depository (CSD). No physical certificates to lose or damage.
Collateral: Can be pledged as security for loans from commercial banks.
Locked-in rates: The coupon rate is fixed for the full term of the bond. Market rate changes do not affect your coupon payments.
Liquidity: Tradable on the secondary market if you need to exit before maturity.
Want to see how these returns compare to Treasury bills? Read Government Bonds vs Treasury Bills in Zambia.