Treasury Bills in Nigeria: All You Need to Know

October 2, 2023 Mustapha Tijani

Treasury bills are one of the best ways to save some income in Nigeria; they are among the forms of investment, alongside a fixed deposit account, with a low interest rate.

It is a short-term investment for a period of three months, six months, and one year. Treasury bills are short-term investments issued by governments to fund national credit needs. The low interest rate of fixed deposits is of a high disadvantage to people, especially what the banks and non-bank financial institutions are offering, then treasury bills can be an alternative.

What is a Treasury bill?

Treasury bills or T-bills are short-term financial instrument that is usually issued by the government or the central bank with a term of three months to one year. The best thing is that you can buy directly from banks, just go to any bank you like and request the form.

If you go to the bank to invest in treasury bills in Nigeria, you don’t need to have an account with the bank, it works much like a fixed deposit account. In Nigeria, the government issues treasury bills through the Nigerian Central Bank, and you can easily buy them from a commercial bank.

Treasury bills are a discountable tool used by the Central Bank of Nigeria (CBN) to manage liquidity in the system, usually on a short-term basis. You cannot make a long investment on the Treasury bills or even roll over automatically if you have specified the amount and the desired duration, then it is final.

How are Treasury Bills Sold?

Treasury Bills are sold in a bi-weekly auction conducted by the Central Bank of Nigeria. Buyers are asked to submit bids based on which the average minimum bid will be selected.

What is the Minimum Amount I can Purchase?

The minimum requirement is ₦100,000 with a term of three months to one year.
The bills will be repaid at the end of the term.
Anybody can invest in treasury bills in Nigeria, be it individuals, companies, corporations, etc.
The daily count for treasury bills is 364 days a year.
It is a tradable instrument, you can negotiate the interest rate, the term, and the amount you are willing to invest.

When it is usually sold?

Treasury Bills are sold every other Wednesday every two weeks as announced by the CBN. The CBN publishes the emissions on its websites and the pages of national daily newspapers. You can also ask your bank account manager to notify you before an issue

How to buy treasury bills in Nigeria

Note that treasury bills can be bought on the primary and secondary markets.
On the Primary Market, you buy directly from the Central Bank of Nigeria usually every two weeks on Wednesdays. The minimum amount is fifty million nairas (₦ 50,000,000).
On the Secondary Market, you buy from the bank or other financial institutions such as stockbrokers. They usually offer a minimum amount of ₦50,000, ₦100,000, or even ₦1,000,000 to individuals or small business owners.
Please note that there are no auction dates on the secondary market, you can go to any bank every working day and ask them for it.

What is the bid rate?

The bid rate, also known as your STOP RATE, is the likely interest rate that you will receive for the amount of principal you invest in the Treasury Bills. For example, you can specify an interest rate of 10% as your expected rate. Your bid rate will most likely be different from that of other prospective buyers of T-Bills.

Related:

How Bid Rates are Selected?

The CBN selects the bids that are below the accepted marginal interest rates. The marginal interest rate is the minimum average rate for bids placed within a bid window. For example, if the marginal bid rate for a bid opened Wednesday, June 27, is 11% then bids below this rate will be accepted and those above rejected.

What if I don’t have a Bid rate?

If you don’t have a bid rate or are unsure about a course, you can choose to have the bank choose for you. However, this does not guarantee that the bank rate will be chosen or the best one.

Can I still purchase after my Bid is rejected?

You can purchase TBs on the secondary market Over The Counter (OTC) through a broker. Here buyers and sellers of TB’s trade the notes in exchange for cash.

Treasury Bills Tenors

There are three terms or duration that an investor can invest in the treasury bills in Nigeria, they are;

91 Days: This is the smallest term or duration that you can invest in the treasury bills, you can say it is only an investment of three months. At exactly this term, the interest rate can be lower compared to other terms.
182 Days: The second term or duration you can get for the treasury bills in Nigeria. This is one of the common or popular duration sought by investors who usually have a good interest rate, especially if you buy from investment bankers.
364 Days: The 364 days are the longest period you can invest, actually a year. It yields a higher percentage of interest, you can even get up to 16% over five hundred thousand nairas invested in the Nigerian treasury bill

Treasury bills are among the safest investments to hold, and the capital value of their investments will be preserved if they are held to maturity.

Can I sell it before the due date?

Yes, you can sell Treasury Bills before maturity through the OTC market. The selling price depends on the forces of demand and supply. For example, a Treasury bill with a face value of ₦100,000 can be sold for less or more, depending on the return expectations of buyers.

If your face value trades at a higher price, it means that you can sell your treasury bills at a profit as such your ₦100,000 can be sold for ₦101,000 or more. If your face value is traded at a lower price, it means you can sell your treasury bills at a loss, so your ₦100,000 can be sold for ₦99,000 or less.

When will the interest be paid?

The interest element of a treasury bill is paid in advance and credited to your bank account. For example, if you have a ₦100,000 Treasury bill with an interest rate of 10% sales, the CBN will debit your account with ₦90,000 so that your ₦10,000 interest is paid in advance.

You will be paid the nominal value of ₦ 100,000 when it is due. By paying your interest upfront your true return will be higher.

What is a True Yield?

True Yield is your actual Return on Investment. (ROI). In the example above, the initial yield for the ₦100,000 is 10%. However, since they pay you interest in advance, your real return is the ₦10,000 interest divided by the ₦90,000 deducted from your account. That is ₦10,000 / ₦90,000 or 11.11%. So this is higher than the 10% coupon. The True rate is earned in full if you hold to maturity.

Can I roll over my investment?

The CBN does not automatically roll over your investment. However, you can give your bank a mandate to extend the capital of your treasury bill when it is due. You can also benefit from compound interest by asking your bank to reinvest the interest portion of your Treasury bill after it has been paid.

Rate of Treasury bills and how to calculate it

The interest rate on Treasury bills in Nigeria: You can say the interest rate or stop rate, is the bid price you receive for the amount that you want to invest.

When buying on the primary market, which is made directly by the central bank itself, you must submit a bid, and also others will also bid.

For example, you bid 20% and others made 15, 13, or 12 percent. The Central Bank then selects bids that are below the marginal rate which is the average minimum rate of bids submitted in a bid window.

It may be 12% and your bid will automatically be rejected because it is above the marginal interest rate

But if an auction is announced and you bid 10%, your bid will be accepted at the end of the day when the central bank announces that the minimum average rate is 12%, because it falls below the marginal rate.

You have to wait for another auction to bid again. You buy on the secondary market, which is composed of the bank, stockbrokers, investment bankers, etc., and base their interest rate on treasury bills.

For example, if you ask your bank to invest in treasury bills, you will be told that this is their interest rate for a while. The only thing you can do is negotiate with them and that’s all.

They bought their securities on the primary market, just like stockbrokers and other non-bank financial institutions, and the primary market is the central bank, they can sell them at any price.

There is nothing better than bidding on the secondary market, you just negotiate and it is up to you to accept or decline your offer.

How to calculate treasury bills in Nigeria: There is a formula to calculate your return on investment: I = P × T × R/100

I = Interest

P = Principal

T = Term/Tenor/Duration

R = Rate

For example, you want to invest ₦500,000 for one year, with a 15% stake. Your investment will pay off;

500,000 × 1 × 15/100 = 75,000

₦75,000 return investment will be paid to you, the actual money from your account that is deducted is ₦425,000.

How ₦425,000 is gotten is by the withdrawal of ₦75,000 of the ₦500,000. To get the true return given to you, we use the following formula: interest rate = (Interest × 100)/ (Principal x Time).

Here is the following calculation;

75000 × 100 ÷ 425000 × 1 = 17.64%

So if you hold for a year, your effective return is ₦88200 for an investment of ₦500,000 for a year.

If you plan to go for treasury bills in Nigeria, I recommend that you opt for a one-year term because the interest rate and actual rate of return are higher compared to others.

How Secure Are T-Bills?

Because Treasury bills are based on the full trust of the Nigerian Federal Government, they are considered one of the safest investments that can be made. They can also be used as collateral, and are accepted by all banks.

Wrapping up

Treasury bills are much better than the fixed deposit and have a higher interest rate. They are issued by the federal government of Nigeria and are very safe for the investment of money you’re not ready to the user yet. It can be gotten from banks or brokers and requires no specific requirement.