There is the general mantra that says “Money stops Nonsense” I really don’t know how true? On that I leave you to decide the answer.
Whatever your answer is/are, you are absolutely entitled to it. But one thing is sure; MONEY makes life easy, or let me say Money Makes sense.
And you can and should make some for yourself and acquaintances. I strongly believe that dealings in Treasury Bills can offer you a slow, steady, sure, predictable and reliable route to making appreciable money for yourself.
Here are quick facts you will know from this piece:
- What is A Treasury Bill
- How and where can I buy Treasury Bills?
- Benefits of Treasury Bills
- Treasury Bills Maturity life span
Before I unleash the secret, let’s talk a bit about money, If Money makes life go around, it has already implied that it is central to the doings of man on earth.
I may not be able to guarantee its practicability in the great beyond. But what a minutes, and for the religious minded, there seems to be a reference to heaven, as a place tinted with gold in the good book “the Bible”
It would shock you to know there are roughly 2,350 verses concerning money in the Bible? That’s almost twice as many as verses about faith and prayer combined. Jesus had a lot to say about money: Nearly 15% of everything Jesus spoke about related to money and possessions.
So you think it is a coincidence?
A study by the American RAND Corporation has established that a country’s power is dependent upon three variables: wealth, innovation and conventional military capabilities.
Wealth, as expressed by GDP therefore provides independence, can be used to put pressure on opponents and offers a good starting point for negotiations.
Hence, the place of Money cannot be overemphasized!
So 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.
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:
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.
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:
- Income on investment is tax-free.
- Government-backed and has Zero default risk
- The low minimum investment value of N10,000
- Treasury bills have high liquidity and can be bought or sold at any time in the secondary market
- Fixed and guaranteed income
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