Treasury Bills in Nigeria: How to Invest (Beginners’ Guide)

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If you’re looking to invest your money and you’d rather be safe than sorry, then your choice should be treasury bills. And if you’re wondering how to go about this, you’re certainly on the right page as we have provided you with a guide on the basics of investing in treasury bills.

But first, let’s take a quick look at the history of Treasury bills.

treasury bills in nigeria

Treasury bills were first used in the United States during World War I, as a source of emergency funds to help balance the unprecedentedly high public debt. By the end of World War II, Treasury bills had become the most popular form of short-term government security.

This type of security is a short-term investment and typically matures within a year from their date of issue. Also, as an investor have the option of buying bills with maturity periods of one month, six months or one year. Generally, the longer the maturity period, the more money you will make from your investment.

Treasury bills are quite popular for many reasons. For instance, they are affordable and can be bought by anyone. In Nigeria, any member of the public can invest in Government Securities: individuals, Corporate Bodies (Private and Public), Institutions (Private and Public), Banks, Discount Houses and Brokers.

Also, Treasury bills are simple, easy to understand, very reliable and they offer fast returns. Additionally, the money you gain from investing in treasury bills is exempt from state and local taxes.

Treasury bills are also known to be a highly liquid form of investment which means they are easily tradable and can be sold on the secondary market and easily converted into cash. If you sell a bill on the secondary market, you sell it to someone else instead of waiting for it to mature.

However, treasury bills have some downsides. For instance, the returns are smaller than those from many other forms of investment. This is a situation of you can eat your cake and have it since treasury bills are quite low-risk.

Treasury Bills in Nigeria: All You Need to Know

In Nigeria, the Central Bank of Nigeria (CBN) issued its first treasury bill in April 1960. They are also known as T-bills.

The CBN defines T-bills as short-term securities issued at a discount for a tenor ranging from 91 to 364 days, such that the income received is the difference between the purchase price and the amount received at maturity or prior to the sale.

Another way to define T-bills is that they are short-term government debt instruments issued by the CBN.

Generally, the purpose of T-bills is to enable the Federal Government to borrow to fund their operations. So if you’re investing you’re actually borrowing the Government your money.

Also, T-bills help the government to control money supply in the economy. The Government usually resort T-bill when they want to borrow for less than one year, this is why they are called short-term government debt instruments.

Often times, people think treasury bills are the same as treasury certificates. Although they are similar in many ways, they are not the same. The main difference is, treasury certificates have maturities of either one or two years and they are no longer being issued.

Now, let’s take a look at the process involved in investing in T-bill. Below is an example of how your investment in T-bills yields an interest.

When you buy T-bills worth for example, N1,000,000 at a 10’% bid rate/interest rate, CBN will debit your account with N900, 000, leaving a balance of N100,000. This means that your interest of N100, 000 has been paid to you upfront. When your investment matures, you are still paid your N1, 000, 000 which means you were actually paid N1,100,000 for your investment of N1,000,000.

There are some things you should know if you’re investing for the first time in T-bills. Below is a list of some frequently asked questions about investing T-bills.

  1. How do I buy T-bills?

T-bills are usually sold through a bi-weekly auction conducted by the CBN. If you are a buyer, you will be requested to quote bids following which the average minimum bid is selected.

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You can buy treasury bills through any official dealer, agent or bank. You just need to visit the agent and complete the T-bills application form. These authorized dealers will submit tender on your behalf but it is important your account is funded with the desired value to prevent your transaction from falling through.

In Nigeria, T-bills are sold every other Wednesday (bi-weekly) as announced by the CBN. The CBN usually announces issuances on their website and in the pages of the Newspaper. This information can also be found on the DMO (Debt Management Office) website.

  1. What is the minimum investment in T-Bills?

The minimum investment in T-Bills have increased from N10,000 to N50,000 as of March 6, 2017 and the maximum investment is N50m.

  1. What are the advantages of T-bills over other types of investments?

Generally, T-Bills are one of the safest forms of investment and are backed by the full faith and credit of the Federal Government of Nigeria. Some of the benefits include:

  • T-bills are good investments for people who wish to save
  • It provides a good source of a steady stream of income
  • It is also a good investment outlet for your free and disposable cash
  • T-bills are also tax-free
  • T-bills are very liquid and can be converted to cash quickly
  • It can be used as a collateral
  1. How do I fix the bid/stop rate?

Once you have submitted your T-bill application, it is expected that you have included your bid rate on the application. The bid rate otherwise called the stop rate and it is the likely interest rate that you have indicated to receive for the principal that you are investing in the T-bills.

The interest rate is not fixed but fluctuates based on demand and amount offered by the apex bank.

If you are not sure of what bid rate to use, you can select the prevailing market rate on the application. In some cases, your agent can help you select the bid rate. And if your bill is rejected you can buy from the secondary market by completing the T-bills application form.

  1. How is the stop rate selected?

The CBN selects the bids that fall below the accepted marginal rates. The Marginal Rate is the minimum average rate for bids submitted within a bid window.  For example, if the marginal bid rate for a bid opened a Wednesday is 11% then bids falling below this rate will be accepted and those above rejected.

  1. What is a True Yield?

True Yield is your actual return on investment. (ROI). A true yield takes cognizance of the fact that interest is paid upfront during treasury bills sale, thus when you factor in that the interest of 18.8% is front paid, your yield (income over investment) is 23%. A N10 million investment for example, will pay you N1.8 million interest, however you receive it at the beginning of the investment rather than at the end as is with most investments. The time value of money and the extra income that you can get if you invest the N1.88 million is calculated as the True Yield of your investment.

  1. What is the duration of T-bills?

Generally, the duration for T-bills are usually for 91 days, 182 days and 364 days. However, you don’t necessarily have to wait for your T-bill to mature before selling it. You can sell it anytime you want to. You can also choose to roll your investment over.

  1. Can I sell my T-Bills before the maturity date?

If you are in urgent need of the funds you invested, you may sell your T-bills before it matures, using the OTC market as earlier mentioned. But you may have to sell for more or less of your face value depending on the forces of demand and supply. For example, a N1,000,000 face value TB maybe selling for less or more depending on the yield expectation of the buyers. If your face value is trading at a higher price, it means you can sell your treasury bills at a profit as such your N1,000,000 can sell for N1,010,000 or more. If your face value is trading at a lower price, it means you can sell your treasury bills at a loss as such your N1,000,000 can sell for N990,000 or less.

  1. Do I have visit the bank if I want to roll over my T-bill?
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Although the CBN does not automatically roll over your investment, you can give your bank a mandate to roll over the principal on your treasury bill upon maturity.

Also, you can also get the benefit of compounding interest by asking your bank to reinvest the interest portion of your T-bill once it is paid. With the advent of banks’ treasury bills mobile application, you are only required to fill a signup form once.

  • Are T-Bills Taxable?

The interests derived from T-Bills are not taxable.

If you want to invest in T-bills, it is necessary you know about the secondary market which is where holders of T-bills issued from the primary market (auction) can resell without holding to maturity.  The primary market is a market where new issues of securities are available for sale. The market for new issues in all government securities is the Issues Office of the Central Bank of Nigeria.

This means the tenor of treasury bills you get to buy is based on the remaining tenor on the bill. For example, if someone bought a 182-day tenor treasury bill at 15% and holds for 12 days before deciding to sell, you will be buying a 170-day tenor bill (since 12 days has elapsed) at an agreed rate, usually below 15%.

Often times, it is brokers that make use of the secondary market. These brokers buy treasury bills  ‘wholesale’ and sell ‘retail’ to end users. The brokers are quite important as many investors are unable to access the primary market due to the high entry requirements and brokers see this as an opportunity to buy even more treasury bills from the primary market and resell at the secondary market, since the demand is now much larger.

Although you get at a lower rate on the secondary market, there are some advantages with buying from this market. For instance, you can easily go to a broker and buy instantly without having to wait for the bi-weekly auction. Also, the issue of an unsuccessful bid does not arise because you get to buy what is available on the spot.

Another way to invest in T-bills is to invest in money market mutual funds which is an indirect method of investment. In this case, you are investing in treasury bills linked to money market mutual funds. The broker buys treasury bills and bonds using pooled investors funds and allocates interest periodically (monthly etc.) and also charges management fees. The rate here will be lower than the primary and secondary market (due to management fees etc.), but you will get higher returns compared to other money market instruments.

Through this method you can also invest monthly. In fact, some brokers accept as low as N2,000 or N5,000 per month and since you can subscribe monthly, you can use this investment models as a means of developing a savings habit which also helps you build up your pool of funds with which you can then use to invest in the secondary market later on as you desire.

Wrapping up

T-Bills is a risk free type of investment and repayment is guaranteed from the Federal Government at the end of maturity period. Also, T-bills can easily be converted into cash because facilities exist in the market for enhancing the liquidity of this instrument.  Additionally, the securities can be traded without unduly affecting their market price while transfer is by simple delivery. In view of the capability and willingness of the issuer to meet principal and interest payments as and when due, the securities are considered to be the safest in the market.

Another interesting thing about T-bills is they can be used as collateral for loan and this type of investment enables you earn your interest upfront and the interests earned from T-Bills are tax-exempt when juxtaposed with those of fixed deposits.


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