Financial Freedom Nigeria


Treasury Bills

A treasury bill (T-Bill) is a short-term debt obligation backed by the federal government of Nigeria. The federal government issues treasury bills at discounted prices for maturity periods from 91 and 364 days. At the end of the selected maturity period, the government buys the bills back at full price. T-bills are issued through a competitive bidding process at a discount from par, which means that rather than paying fixed interest payments like conventional bonds, the appreciation of the bond provides the return to the holder. For example, imagine that you bought a 182- day N200,000 treasury bill at a discounted rate of N180,000. The federal government writes an IOU for N200,000 and agrees to pay back in 182 days. You don’t get any monthly interest payments, rather you make your money back when the bond is purchased back from you at full price. In this case the T-Bill pays 11 per cent interest rate (N20,000/ N180,000 = 11per cent) over the 182-day period.

Where are T-Bills sold?

T-Bills are sold at commercial banks and official agents such as merchant banks. It is open to individuals and corporate investors.

What is the minimum T-Bills I can buy?

It varies from bank to bank. While some banks sell a minimum of N50,000, others can offer as much as N500,000.

For what periods can I invest?

Three tenures are available: 91 days, 182 days or 364 days.

What is the process to buy T-Bills?

The first thing to do is to complete an application form which is issued by your bank or any approved discount house such as Kakawa Discount House Ltd. The next thing to do is to ensure that you submit the application early since the CBN requires banks to submit the application forms Wednesday before the dates announced. When completing the application form, you will be requested for a discount rate – which is the percentage by which the face value of the bill is discounted by. Current rates are around the 12% – 14% mark. You can request for this rate to either be set by your bank, or specified by you (under the “stop rate” section of the application form). If you do however choose to specify a rate which is  significantly higher than what the CBN is prepared to offer, your bid will fail. Various banks will offer you various stop rates/discount rates, depending on how much you want to invest and how long you want to invest it for so it is a good idea to shop around and not go with the first offer you receive. Do your research and select a bank carefully as people have reported banks offering as low as a 2.4% discount rate.

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 T-Bills worth N100,000 at a 10% discount rate, CBN only debits your account of N90,000. At the end of the maturity period, you are paid your face value sum of N100,000.

Can I sell my T-bills before it matures?

Yes, it is possible to sell your T-Bills before its maturity using the Over the Counter (OTC) market. You might make a loss if you choose before maturity date as the

OTC is determined by the forces of demand and supply.

Are T-Bills secure?

T-Bills are considered one of the safest and most secured investments because they are based on the full faith of the Federal Government of Nigeria. Commercials and other banks also accept T-Bills as forms of collateral for accessing loans.

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