What is a treasury bill?
A Treasury bill (or T-Bill) is a short-term government debt security, which yields no interest. Rather, it is issued at a discount on the redemption price.
Basically, the Federal Government issues treasury bills at discounted prices for maturity periods 91, 182 and 364 days. At the end the selected maturity period, the government buys the bills back at full price. For example, let’s say you buy a 182-day ₦200,000 treasury bill at a discounted rate of ₦180,000. The Federal Government of Nigeria writes an IOU for ₦200,000 and agrees to pay back in 182 days.
How long can I invest for?
There are three (3) tenors available: 91 days, 182 days or 364 days. Your investment matures after the expiration of the tenor.
Is there a minimum purchase amount for T-Bills?
For the Primary Market auctions the minimum subscription was recently review upwards to N50,001,000. However, purchases in the secondary could be as low as N1, 000,000 depending on the Dealer.
How do I calculate the return on my investment on T-Bills?
It is very easy to calculate the returns on your investment, and how this is paid. If for example you purchase 364 days T-Bills worth ₦100,000 at a 10% discount rate, CBN only debits your account of ₦90,000. At the end of the maturity period, you are paid your face value sum of ₦100,000.
Can I sell my T-bills before it matures?
It is possible to sell your T-Bills before its maturity using the OTC market.
How secure are T-Bills?
As T-Bills are based on full faith of the Federal Government of Nigeria, they are considered one of the most secure investments to make. They can also be used as collateral and are accepted by all banks.
How can I buy T-Bills?
T-bills can be purchased both at the primary and secondary markets.
- Primary Market
This is where new issues of securities are available for sale. The market for new issues in all government securities is the Issues Office, Central Bank of Nigeria.
A new issue of T-Bills occurs bi-monthly, and an issuance calendar is normally made public on a quarterly basis.
All investments are by auction. Subscriptions at this market are for 91 days, 182 days and 365 days. “An advertisement, inviting bids for the securities, is placed in selected national dailies in advance of the auction. The amount of securities being applied for must have a minimum value of N50,001, 000 and in multiples of N1,000 thereafter. Subscription is open to banks, discount houses, corporate bodies, institutions and individuals.
- Secondary Market
Secondary market is a market for the trading of previously issued securities. Hence, tenors of the securities traded are shorter than the original tenors and the players in the markets include banks and discount houses.
Can I sell my T-bills before it matures?
If you are in urgent need of funds, you may sell your T-bills before it matures, using the OTC market. Whether you will sell for more or less of your face value depends on the forces of demand and supply.
Benefits of T-bills
- Yield / Income on investment is realizable upfront and can be automatically reinvested for a higher income.
- The securities have zero-default risk.
- Yield/Income on investment is tax-free.
- The securities can be used as collateral for short-term borrowing from banks
- Higher income when compared to Fixed Deposit in the Bank