Nigeria Treasury Bills (NTBs) are short term debt instruments issued by the Federal Government through the Central Bank of Nigeria (CBN) to provide short term funding for the government. They are by nature, the most liquid money market securities and, are backed by the guarantee of the Federal Government. They are usually issued for tenors of 91 days, 182 days and 364 days. Treasury Bills are discounted instruments, which are purchased for a price less than their par (face) value; and at maturity, the holder of the bills is paid the full par value by the government.
•Treasury Bills are discounted instruments (interest is paid upfront)
• Upfront interest can be re-invested to earn compounded returns
• It is a risk free investment (carries the guarantee of the Federal Government of Nigeria)
There are two options available to an investor in Treasury Bills:
Option 1: The purchase of NTBs at the Primary Market (Dutch Auction) that the CBN conducts fortnightly. The modalities are as follows:
• The CBN makes announcements in the newspapers about forthcoming NTBs auction for the tenors that will be on auction usually of 91, 182 and 364 days.
• Potential investors submit their bids, through a Primary Dealer/Market Maker , indicating the amount and tenors of NTBs they are interested in. The minimum amount available for sale at the Dutch Auction is N10,000.00.
• The investor indicates a bid rate at which he is willing to purchase the NTBs.
• At the Dutch auction, various bids are submitted at various rates and the highest bid at which the total volume of bills on offer is sold closes the auction.
• An investor will be successful at the auction where the bid rate quoted is below or at par with the closing rate.
• If the investor’s successful bid rate is however lower than the closing rate, the investor enjoys discount at his bid rate.
• Where successful, the investor is notified and pays a discounted value of the bid amount at the rate indicated on the day after the Dutch auction (T+1) as settlement.
• The investor also advises Investment Advisers to move the NTBs purchased to his custodian bank who then lodges same in the investor’s CSCS account.
• Where an investor does not have a CSCS account, an investment agent can, on request, act as its custodian and hold the treasury bills until maturity.
• The investment agent sends a letter to the investor indicating all the terms of the NTBs.
• However, where an investor is unsuccessful at the Dutch auction, we will be willing to provide access to NTBs investment through the secondary market.
Uncertainties about the Dutch Auction
There are two uncertainties about the Dutch Auction:
• The uncertainty that an investor’s bid rate could fall below the closing rate making him to earn a yield that is lower than the closing yield;
• And the uncertainty that an investor’s bid is not successful.
Option 2: The second option is the purchase of Treasury bills at the secondary market where there is daily block trading of N250 million each in NTBs between primary dealers/market makers. Recent CBN Pronouncement on Foreign Investments in Fixed Income Securities Recently, the CBN removed the restriction placed on foreign investors from investing and trading in Federal Government Bonds (FGBs) and Nigerian Treasury Bills (NTBs) that have maturities of less than one (1) year. Foreign investors can now invest and trade in NTBs irrespective of their tenor, both in the primary and secondary markets. This policy will generally increase participation from foreign investors who will seek to earn attractive returns from the market.
• Minimum Treasury Bills investment is N1,000,000.00 (one million naira) only and multiples of N100,000.00 (one hundred thousand naira) only thereafter.
• The investment agent provides custodian services to hold the bills on behalf of the investor until maturity.
• The investor pays 0.75% p.a. of the investment’s face value (for bills bought at the primary auction).
• At With some Primary Dealers like FSDH, minimum investment sum is N5,000,000.00 (five million naira) only. This sum can be utilised for investment in money market and government securities with minimum Treasury Bills investment of N1,000,000.00 (one million naira) only.
• However, for clients who want to make investment only in Treasury Bills, minimum investment sum of N5,000,000.00 (five million naira) only will apply.
Source: FSDH Securities