How to invest in Treasury Bills in Nigeria

Across the world, Treasury bills are one of the most popular investment options. Despite their wide reach and usage, many people have no idea what they are or how they function.

Essentially, this post will act as your comprehensive guide to Nigerian Treasury Bills and other pertinent information anyone might seek.

What are treasury bills

T-Bills (Treasury Bills) are short-term financial securities issued by Nigeria’s Central Bank, with maturities ranging from three months to one year.

They are government-backed debt securities that are considered extremely safe investments.

Maturity duration of treasury bills

They are often retained for 91 days, 182 days, or 365 days. As a result, the maturity period can vary between 91 days, 182 days, and 364 days, depending on your preference. The CBN, on the other hand, has the option of selling bills for any or all of the tenors available at the same time.

Selling before maturity

Yes, Treasury Bills can be sold before their maturity date. This can be accomplished through the OTC market.

The price at which you sell is determined by supply and demand dynamics. A ₦100,000 face value TB, for example, could sell for less or more according to the purchasers’ expected yield.

If your face value is selling at a greater price, it suggests you can profitably sell your Treasury Bills, thus your N100,000 could sell for N101,000 or more.

If your face value is trading at a lower price, you can sell your Treasury Bills for less than their face value, for example, your N100,000 could sell for N99,000 or less.

Nigerian treasury bills and their tenure

In Nigeria, there are three major tenures for treasury bills:

• Three-month period:

This is the cheapest tenor available. Because of its short lifespan, this tenor will generate far less interest than other tenors.

• Six months period:

This is the most common tenor rate due to its competitive interest rate, particularly when purchased from investment bankers.

• Twelve months period:

This is the longest tenor you may invest in, lasting a year. Because it yields a larger rate of interest, it is the greatest tenor for the money you won’t need for a long time.

Interest rates on Nigerian treasury bills

They are typically purchased in the Nigerian financial market’s primary or secondary markets. Interest rates on treasury bills in Nigeria vary depending on the amount invested, the bill’s tenure, and the market from which it was purchased.

The Central Bank of Nigeria, for example, as a key market participant, offers a minimum investment of N50 million in t-bills with an annual interest rate of 3% to 5%. Some commercial banks offer investments as low as N100,000 with interest rates ranging from 3% to 12%.

Tax implications of Nigerian treasury bills

In an effort to promote more investment, the federal government provided Company income tax exemptions on short-term government securities and bonds in 2011. The income produced through t-bill investments is not deductible for tax purposes.

Buying treasury bills in Nigeria

Financial institutions have control over them (banks or stockbrokers). Filling out a form with your personal information, the amount you want to invest, and your bid rate is required to invest in Treasury Bills. The minimum amount of Treasury bills you can buy is usually determined by the dealer.

Minimum number of treasury bills one can obtain

The minimal amount you can get is usually determined by the vendors. Some people acquire Treasury Bills as a set of investments, while others buy them individually.

Times when treasury bills are put on sale

According to the Central Bank of Nigeria, Treasury bills are sold every two weeks (CBN). Essentially, they inform the general public of the issuing via print media pages or their websites. You can also request that your bank officer notify you.

T-Bill prices in Nigeria and factors affecting them

The following are some of the factors:

Maturity Dates:  These dates have a big impact on Treasury Bill prices. The longer you keep the bills, the better the prices might be.

Market Risk: Treasury bills are a low-risk investment with little or no market risk. However, there are still significant market concerns that could affect the bill pricing in the short or long term.

The Central Bank of Nigeria’s monetary policy and the country’s inflation rate.

Other terminologies you should know

Treasury Yield

Treasury Yield is the return on an investment represented as a percentage of the amount invested in treasury bills.

Bill Auction

A bill auction is an auction organized by the central bank to sell treasury bills. It is usually held every two weeks.

Bid Rate

 Finally, Bid Rate refers to the discount rate at which an investor is willing to invest in Treasury Bills.

T–Bills or Government bonds: Which is better?

The government utilizes two forms of debt instruments to raise funds in the financial market: bonds and Treasury bills.

Treasury bills, often known as T-bills, are issued when the government need funds for a short period of time. They have a maximum maturity of 364 days. The money market is where they are traded.

Bonds are issued when the government requires funding for a longer period of time, such as five years.

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When does the interest have to be paid?

The interest component of a treasury bill is paid to you in advance and credited to your bank account. For example, if you buy a ₦200, 000 TB with a 10% interest rate, the CBN debits your account with N190,000, and your N10,000 interest is paid in advance.

You will be paid the face value of N200,000 when the bond matures. Your genuine yield is actually higher because you paid your interest upfront.

What is a true yield?

Your actual Return on Investment is known as True Yield (ROI). In the previous example, the initial yield for the N200,000 is 10%. Because they give you interest upfront, your genuine yield is the N10,000 in interest divided by the N190,000 taken from your account.

That’s a ratio of N10,000 to ₦190,000 or 11.11 percent. As a result, it is higher than the 10% coupon. When you hold to maturity, the True Yield is totally earned.

Advantages of Treasury bills

• It is a risk-free investment because the Federal Government of Nigeria backs it up.

• T-Bills are highly liquid instruments that can be used to secure loans.

• For ease of entry and exit, a liquidity-active secondary market is recommended (though at a cost)

• The interest you earn is tax-free.

• It is a good source of consistent income.

• T-Bills are a smart investment for anyone looking to save money.

Disadvantages of treasury bills in Nigeria

Take note of the following disadvantages of Treasury Bills in Nigeria before investing. In Nigeria, there are 20 simple services to render and earn money.

1. It is not recommended for low-capital investors.

One thing investors should keep in mind is that the interest rate on Treasury Bills ranges from 11.6 percent to 15 percent. With the current rate of interest, making a good profit with a little capital investment will be extremely difficult.

When investors try to invest in Treasury Bills, they are always offered to the lowest bidder, which implies there won’t be much of an increase for anyone putting in a small amount of money and contemplating the interest rate.

The smallest amount an investor can invest in Nigeria is $50,000, while the maximum amount is $5,000,000. This means that any investor with less than $50,000 or more than $5,000,000 will be denied the opportunity to invest.

As a result, as an investor, keep in mind that if your money is less than $50,000, you won’t be allowed to invest in Treasury Bills.

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2. Attract low return rates

Investors seeking high or fixed rates of return should be aware that Treasury Bills are highly susceptible to inflation.

Treasury Bills are thought to be ideal for preserving capital and earning a consistent low rate of income for the wealthy, but they are not a smart alternative for an investor looking to develop wealth.

However, regardless of inflation, the investor’s capital is always safe, and he or she will almost certainly have access to it at the conclusion of the investment period, even if the interest rate cannot be predicted.

3. Investments are not able to be rolled over

The Central Bank of Nigeria does not automatically roll over investments. After receiving the interest for the first investment, the investor has the option of rolling over any investment by contacting the bank through which he is making the investment.

As a result, before an investor can proceed to make another investment, the first one must be paid off. Furthermore, an investor will pay a fee each time he bids on Treasury Bills.

4. The Nigerian Central Bank’s inconsistent policies (CBN)

Because the Federal Government’s policies can easily influence Treasury Bills through the Central Bank of Nigeria, investors are likely to be impacted if policies change. 

Because of Nigeria’s erratic economic situation, the central bank has a tendency to enact measures that may alter the bidding rate of Treasury Bills, so affecting investor interest.

Conclusion

Treasury bills are a good source of investment. However, investors must conduct a thorough study on any investment they wish to pursue, examining both the positive and negative aspects to determine whether they have a chance of profiting at the end of the investment period.