Bond yield is, essentially, the amount of money an investor who bought a government-issued bond gets from owning the debt as a percentage of the current price. So, once a year, typically, the bondholder will receive interest.
That interest is then divided by the market price of the bond, which gives you a measure of the yield or the return on a bond.
When the price of a bond goes down, the yield goes up, which means that the government spends more money on bond markets to raise fresh debt and sell extra bonds. So, the yield on a bond is basically the cost of borrowing for a government.
If you track global markets, exchange rates and bank yields, the idea of a currency collapse is interesting on many levels.It can present the opportunity to earn high yields, not only in foreign bank accounts but also in government debt. If you’re interested in investing in government debt, our in-depth analysis examines the offerings that might be worth taking part in and those which frankly aren’t worth touching.
With some European countries paying negligible interest, the thirst for bond yield is huge. Park your money in Swiss bonds for a year, and you’ll pay them more than half of one per cent for the privilege. Park your money in assets like gold, and you may avoid inflation, but you won’t earn yield.
The challenge is determining which sovereign bond offerings are worth investing in. As they say, never catch a falling knife. No doubt, some of the world’s highest-yielding government bonds are denominated in local currencies that will depreciate against the dollar or euro even more.
Government Bonds With High Interest Rates
Before we get started, let’s clarify that this article is not intended to provide any kind of investment advice. Any investment is potentially risky, and investing in government debt typically based on random foreign currencies can be especially risky, even for experienced investors.
Basically, any decision you make based on this information is yours alone, and you’re responsible for the consequences of your own investments.
With that said, here are the world’s highest-yielding government bonds as of June 2024.
Argentina
Government Bond Interest Rate: 40.45% (One year)
Argentina is no stranger to hyperinflation or economic collapse; its current inflation rate is a massive 289%. Decades of failed economic policies, repeated debt defaults, printing money and political volatility have led Argentina to hyperinflation.
With access to finance curtailed by debt default, the global pandemic brought a severe decline in the economic prospects of citizens, nearly 40% of whom live in poverty. Recently, the Argentine peso fell to record lows against the dollar. In fact, the peso is still plunging, reaching 0.0011:1 against the US dollar.
If you’re willing to gamble on the Argentine peso, a one-year government bond is currently yielding 40.45%. Technical indicators suggest a strong sell. Meanwhile, banks are offering an average of 75% from a previous floor of 110% on term deposits, with some sign of a slowdown in sky-high inflation since President Javier Milei took office.
When you consider that the peso has historically had one of the world’s largest currency black markets, you’re probably best to stay away.
Egypt
Government Bond Interest Rate: 27.497% (Six months)
The potential of Egypt as an investment destination is best described as a mixed bag. Some experts regard its thriving property market, geo-location and skilled labour as a plus. Others point to severe economic mismanagement as a strong negative. In a country where the military still controls large parts of the economy, headline inflation is 32.5%
In addition to having the world’s worst citizenship by investment on offer, Egypt also has a lot of governmental instability. Enough, in fact, to force consideration of whether state bonds will be repaid.
After years of gradual descent against the dollar, one Egyptian Pound will currently get you US$0.021. A series of steep devaluations has seen the local currency lose nearly half of its value against the greenback.
Maybe that’s why Egypt’s sovereign bonds are paying some of the highest interest rates among emerging markets. You would need a healthy risk appetite to take them up.
Turkey
Government Bond Interest Rate: 42.07% (Two years)
Turkey is still in the grip of a sustained economic crisis that has seen record-high inflation and a plunging currency. With the inflation rate at 75.45% in April 2024 and the Turkish Lira falling to 0.031 against the US Dollar, some experts are saying that Turkey has hit rock bottom.
This is so much so that the World Bank is signalling a potential turnaround in the form of interest rate increases to control inflation and tax hikes to reign in Turkey’s budget deficit. Obviously, it’s a wait-and-see situation, but a tightening of monetary policy and regulatory reform could set Turkey on the road to recovery.
Currency collapse is a big part of the reason why Turkey’s government bond yields are now well into the 40% range. There’s definitely an opportunity to arbitrage investments in Turkey for immigration status as part of, say, a passport portfolio.
You can earn up to 34% in lira at the local bank for a 12-month deposit, although the process isn’t as easy as it used to be.
The big question is whether Turkey’s Government will use its heft as a large domestic economy to put pressure on bondholders. If the lira can recover once more, that 42.07% will look like a wise investment.
Kenya
Government Bond Interest Rate: 16.7% (One year)
While the Kenyan shilling remains firmly on the back foot against the dollar (US$1 dollars buys 130.25KES), there are signs of some financial stability after 2023’s social unrest. The Kenyan economy grew 5.6% in 2023 as agricultural output was boosted by favourable weather.
President William Ruto took the unpopular step of implementing a new tax system to limit borrowing, increase government revenues and cut spending. This is on the back of a growth rebound after the pandemic.
Like many African economies, Kenya is a land of contradictions. It has become a regional economic hub in East Africa, with startups and multinational corporations alike setting up shop in Nairobi. The economy continues to grow, but there are still sad economic realities that Kenya needs to face.
Kenya’s national debt stands at 72.97% of gross domestic product (GDP), which the IMF rates as being at a high risk of distress. Despite its relative progress compared to other developing nations, investing in Kenya remains risky.
Brazil
Government Bond Interest Rate: 11.014% (Two years)
Like its neighbour Argentina, Brazil has long been something of an economic basket case. This is a country where opening a business bank account takes nine months in some cases; the same account would take about an hour elsewhere. That said, in inflationary terms, at least, Brazil is way more stable, with a current rate of 3.69%.
With relatively benign growth in the last few years, Brazil’s economy rebounded in 2023 on surging agricultural output, though all the indicators suggest that this growth has flattened in 2024.
Recent political turmoil has done little to help Brazil on the international stage. Brazil’s currency has suffered a not-quite-Turkey-esque slide in recent years. After replacing the controversial Jair Bolsonaro with socialist president Lula, Brazil’s currency dipped further. Supporters of the right-wing former leader stormed government buildings to protest against his electoral loss.
In the resulting chaos, Brazil’s real fell 0.6% to trade around 5.257 per dollar, where it remains in June 2024 on the back of another recent currency slide. That said, some analysts suggest that Brazil’s currency does not deserve the beating it’s taken. Despite being among the worst-performing emerging market currencies, they posit that the fundamentals of Brazil are stronger than many think.
Either way, Brazil’s sovereign debt rates are currently yielding an impressive 11% on a two-year offering. If you agree that the Brazilian real will recover against your base currency, you may take the risk on the country with a current bank deposit interest rate of 12%. That’s if you don’t expire before someone opens a bank account for you.
Namibia
Government Bond Interest Rate: 9.12% (One year)
The Namibian dollar may have the worst peg on the planet. After being freed from South African occupation in 1990, Namibia went on to develop its own currency but pegged it to the South African rand. While the Namibian dollar hasn’t exactly been kept at par with the declining rand, poor reserves and its close association have caused the dollar to fall against developed currencies.
In 2024, Namibian Government debt is projected to reduce to 60.1% of GDP. Its sovereign credit rating has also deteriorated from investment grade to junk status after a downgrade in 2017.
Economists blame the downgrade on the government’s stance of borrowing rather than making difficult cost-cutting decisions. Namibia’s sovereign debt is currently paying a coupon rate of 9%, and most technical indicators list the debt as a ‘strong sell’.
India
Government Bond Interest Rate: 7.015% (Two years)
India’s lagging infrastructure, massive rural population and high poverty rates have long been associated with a sense of economic disorder. Today, though, India appears to be on the verge of change. A burgeoning middle class, a digital-savvy and English-speaking workforce and its emerging status as a BRIC powerhouse have done much to dispel these notions.
In a country where retail inflation is stable and the national debt is reducing, India’s S&P Global Rating has just gone from stable to positive. Record growth has seen India’s GDP grow by 8.2% in the last year.
India’s economy, however, is still a tale of good and bad. Its public debt remains at a high level for an emerging economy, at around 82% of GDP. Efforts backed by insolvency laws have seen the country start to tackle the world’s highest level of bad loans. Despite this, it remains to be seen if India will meet its fiscal deficit targets.
Overall, India still seems like more risk than we’d like to take on for a relatively low interest rate, but there are two sides to every story. Park your money in rupee-backed debt for two years, and you’ll earn 7%. As far as banking in India to earn similarly high interest rates, it’s probably not advisable.
Bahrain
Government Bond Interest Rate: 6.057% (Two years)
More promising is the Gulf nation of Bahrain. Bahrain has the distinction not only of being an oil-producing nation but of having its national currency – the Bahrain dinar – pegged to the US dollar at a rate of 2.65. Yes, the dinar is one of a handful of currencies stronger than the US dollar.
However, with an economy heavily dependent on oil, Bahrain has low reserves and high extraction costs. It did, however, recover well from the turmoil of COVID-19, benefiting from higher oil prices, strong tourism and construction-driven GDP above 6%.
2023 signalled lower oil prices and a revision to weaker growth. However, the Gulf State economic recovery plan has seen growth in its non-oil sector, and analysts predict GDP growth to rebound in 2024.
With national debt reaching US$42.2 billion in March 2024, credit worries have driven up yields as well as the cost to insure its debt. If you believe that Bahrain will be able to support its US dollar peg, then today’s yields may be quite attractive for you, given their effective convertibility to/from US dollars.
With yields on two-year government debt at 6%, foreigners can’t open bank accounts in Bahrain without a work permit, so this is the easiest way to earn interest on holding the dinar.
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