The Ugandan shilling rallied on Wednesday, buoyed by strong inflows from offshore investors looking to invest in Uganda's high-yielding debt and by a sell-off of dollars by commercial banks.

"The market is getting a significant amount of inflows from offshore investors coming to tap government debt," said Shahzad Kamaluddin, a trader at Crane Bank.

Kamaluddin said there was an interbank sell-off of dollars with most players figuring the local currency had potential to post extra gains after strengthening to the low side of 3,500.

"Commercial banks are shortening their dollar positions... They're betting on a bullish outlook for the shilling," Kamaluddin said.

READ: Shilling strengthens on expectations of rate increase

The Bank of Uganda (BoU) was later on Wednesday scheduled to sell 180 billion shillings ($52 million) of Treasury bonds of 5-, and 15-year tenors.

Yields on Ugandan debt have been broadly upward this year, tracking the central bank's monetary policy tightening cycle.

The BoU has hiked its key policy rate by 600 basis points this year to 17 percent.

At their last sale on Sept. 9, the five-year bonds fetched a weighted average yield of 19.994 percent while the 15-year bonds fetched 18.174 percent when they were last sold on August 12.