Zambia's local-currency bonds have delivered world-leading returns of 39% in 2026, more than double Hungary's emerging-market runner-up performance. The rally gained momentum after the government successfully bought back $1.36 billion in dollar bonds, which will save the nation approximately $275 million for electricity grid improvements.

Strong copper export revenues and investment inflows from funds seeking alternatives to war-affected Gulf regions have supported the bond surge. In January, authorities lifted restrictions on non-resident participation in debt auctions, raising the cap from 5% to 23%. This change triggered significant foreign capital inflows, with nearly half of securities at a February sale purchased by overseas investors.

The kwacha currency has jumped more than 4% against the dollar since the buyback announcement, extending its year-to-date gain to 24%. Inflation has fallen to eight-year lows below 7%, allowing the Bank of Zambia to cut interest rates for a third consecutive meeting. Yield-hungry investors have been attracted by rates of 14.25% on two-year notes and 17.59% on 15-year bonds.

However, the $10 billion total market size poses liquidity challenges for large investors. The kwacha's real effective exchange rate sits at its highest level in over two decades, raising concerns about potential overheating in the rally that has outpaced most emerging markets.