Your Ultimate Guide to Treasury Bills Trading in Nigeria

Treasury bills, also known as T-bills, are loved by investors who wish to make fixed short-term returns that are guaranteed. Unlike stocks or mutual funds, T-bills are issued and backed by the government, thus having lower interest rates but the highest security. If you’re looking for an investment product that is easy to trade in and offers minimal risk, then you should consider T-bills. This article covers all you need to know about treasury bills trading in Nigeria, from how to get started, how they work as well as their benefits.

What are Treasury Bills?

T-bills are short-term government debt instruments issued by the Central Bank of Nigeria on behalf of the Federal Government of Nigeria with a maturity period between 91 to 364 days and sold through an auction at a discount price, such that the interest earned by the investor is the difference between the price paid at purchase and the bill’s face value which is the final amount received at maturity.

How are Treasury Bills Trading in Nigeria Works?

Treasury bills are usually issued by the government to fund independent operations and special projects. When a treasury bill is about to be auctioned, an advertisement is published in advance in national newspapers, inviting bids from interested investors.

Treasury Bills Auction: T-bills auction uses a Dutch auction system, which works by receiving all bids for an item before determining the highest price at which the item can be sold. During the auction of treasury bills in Nigeria, bidders quote the discount rate they are willing to pay for each tenor of treasury bills. After receiving the bids, CBN accepts the lowest bids first, climbing higher until it has accepted the total amount it seeks to raise for the issued treasury bills. This final rate is selected by the CBN as the maximum discount price also known as the stop rate. Any investor whose bid is lower or equal to the maximum rate is accepted while quotes above the stop rate are outbid. Investors below the stop rate get the rate that they bid at. 

Here’s an example: Let’s say the CBN seeks to raise N100 million for a single T-bills issue and receives the following quotes for a 364-day tenor:

N10 million at 5.85%

N15 million at 5.98%

N10 million at 6%

$25 million at 6.25%

$20 million at 6.47%

$30 million at 6.95%

$50 million at 7%

CBN will accept the lowest bids until a total of N100 million has been accepted which will fall within the 6.95% bid. However, only N20 million will be accepted from this bid, while bids higher than this will be rejected. All bidders including those with initially lower bids will receive a discount rate of 6.95%.

Maturity: The maturity period for treasury bills is 91, 182 and 364 days. At maturity, The face value of the treasury bills is automatically repaid to the account of the investor by the CBN through an Authorized Dealer like banks and investment brokers.  Treasury bills also retain high liquidity, so Investors also have the choice to sell their treasury bills before the maturity date. However, a resale of your treasury bill could require a rediscounting of the bills which will generally reduce its value and might lead to a loss of the interest earned.

Where Can I Buy Treasury Bills?

Treasury bills are sold in two ways in Nigeria:

  1. The first is through a primary market, which is directly from the CBN and requires a minimum purchase sum of N50 million. Primary market buyers can only buy treasury bills when there is a new issue from the government. 
  2. The second way to trade treasury bills in Nigeria is to make purchases through authorized dealers like banks, discount houses and stockbrokers. In the secondary market, previously issued bills are traded and can be bought or resold at any time. However, tenors of the T-bills traded on the secondary market are shorter than the original tenors.

How are Interests Paid on Treasury Bills in Nigeria?

Treasury bills are sold at a discount value and carry a fixed interest which is the difference between how much was paid for the bill and how much is returned at maturity. If an investor purchases treasury bills worth N20,000 at a discount price of 5%, they only pay N19,000 at the point of purchase but receive a repayment total of N20,000 at maturity.

Benefits of Treasury Bills Trading in Nigeria

There are several advantages to investing in treasury bills; here are the most popular:

  1. Income on investment is tax-free.
  2. Government-backed and has Zero default risk 
  3. The low minimum investment value of N10,000
  4. Treasury bills have high liquidity and can be bought or sold at any time in the secondary market
  5. Fixed and guaranteed income 

Seeking to start treasury bills trading in Nigeria?

Get the best trading services for treasury bills from FBNQuest, a CBN-authorized dealer for treasury bills and other money market instruments. We offer the best rates and a seamless trading experience so you can grow your income with ease. 

To learn more about treasury bills trading with FBNQuest, visit: 

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