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Everything you need to learn about Treasury bills

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Treasury Bills are government-guaranteed debt instruments issued by CBN on their behalf to finance expenditure. The CBN also uses treasury bills to control money supply in the economy.

How are Treasury Bills Sold?

Treasury Bills are sold through a bi-weekly auction conducted by the CBN. Buyers are requested to quote bids following which the average minimum bid is selected.

Where can I buy Treasury Bills?

Treasury Bills can be bought through any official dealer. The easiest these days are through banks’ treasury bill mobile application. A typical example is Sterling Bank’s i-invest.

What is the Minimum Amount I can Buy?

Before, you could buy for as low as N10,000 and in multiples of N1,000 thereafter. However, this was increased to N50,000,001 in 2017. This article explains how you can buy treasury bills if you do not have up to N50 million. Though, the minimum for the i-invest mobile application is N100,000.

When is it usually sold?

Treasury Bills is sold every other Wednesday (bi-weekly) as announced by the CBN. The CBN announces issuances in their websites and in the pages of national dailies. You can also ask your bank account officer to notify you ahead of an issuance.

How Can I Buy Treasury Bills?

To buy Treasury Bills you will have to approach your bank requesting for a form. You fill the form with your personal information also indicating the amount you want to buy as well as your bid rate.

With the advent of banks’ treasury bills mobile application, you are only required to fill a signup form once.

What is the bid rate?

The bid rate otherwise called your STOP RATE is the likely interest rate that you have indicated to receive for the principal that you investing in the TB’s. For example, you can indicate an interest rate of 10% as your expected rate. Your bid rate will most likely be different from that of other intending buyers of TB’s.

How is the Bid Rate selected?

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

[Read Also: This is how to bid for the second Treasury Bills Sale of 2019]

What if I don’t have a Bid rate?

If you do not have a Stop Rate or you are not sure of a rate you can select the option of having the bank choose a rate for you. However, this does not guarantee that the bank rate will be chosen or will be the best.

Can I still buy if my Bid is rejected?

You can purchase TB’s from the secondary market Over The Counter (OTC) through a broker. This is also where buyers and sellers of TB’s trade the notes in exchange for cash.

What are the durations (tenor) for the TB’s?

Treasury Bills are usually for 91 days, 182 days and 364 days. As such, you can have the CBN hold your cash for 91 days, 182 days or 364 days, depending on your choice. However, the CBN can decide they want to sell Treasury Bills for all the tenor available or either of them.

 

Can I sell before Maturity?

Yes, you can sell Treasury Bills before maturity. As mentioned above, this can be done through the OTC market. The price at which you sell depends on the forces of demand and supply. For example, an N100,000 face value TB may be selling for less or more depending on the yield expectation of the buyers. If your face value is trading at a higher price, it means you can sell your treasury bills at a profit as such your N100,000 can sell for N101,000 or more. If your face value is trading at a lower price, it means you can sell your treasury bills at a loss as such your N100,000 can sell for N99,000 or less.

When is the interest paid?

The interest element of a treasury bill is paid to you upfront and credited to your bank account. For example, if you purchase a N100,000 TB with an interest rate of 10% the CBN debits your account with N90,000 as such your N10,000 interest is paid upfront. Upon maturity, you are paid the face value N100,000. The upfront payment of your interest makes your true yield actually higher.

What is a True Yield?

True Yield is your actual Return on Investment. (ROI). Using the example above, the initial yield for the N100,000 is 10%. However, because they pay you interest upfront your true yield is actually the N10,000 in interest divided by the N90,000 actually deducted from your account. That is N10,000/N90,000 or 11.11%. This is, thus, higher than the 10% coupon. The True Yield is completely earned when you hold to maturity.

Can I roll over my investment?

The CBN does not rollover your investment automatically. However, you can give your bank a mandate to roll over the principal on your treasury bill upon maturity. You can also get the benefit of compounding interest by asking your bank to reinvest the interest portion of your TB once it is paid.

Are Treasury Bills Safe?

Treasury Bills are one of the safest forms of investment and are backed by the full faith and credit of the Federal Government of Nigeria.

 

Apart from the Interest Rates, what are the benefits?

  • A good source of a steady stream of income.
  • Treasury Bills are a good investment outlet for your free and disposable cash.
  • Treasury Bills are good investments for people who wish to save.
  • Treasury Bills are also tax-free.
  • Treasury Bills are very liquid and can be converted to cash quickly.
  • They can be used as collateral.

Are Treasury Bills Taxable?

Interest derivable from Treasury Bills is not taxable.

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Yuguda, new SEC DG, assumes duty

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The new Director-General of the Securities and Exchange Commission (SEC), Mr Lamido Yuguda, on Monday assumed duty at the capital markets’ regulatory agency.

A statement by Mrs Efe Ebelo, SEC Head of Corporate Communication, said Yuguda assumed duty alongside three new executive commissioners of the commission.

They are Mr Reginald Karawusa, Mr Ibrahim Boyi and Mr Dayo Obisan.

The SEC DG said that capital market was a crucial component of any economy with a lot of potential for growth and development of the country.

He said the commission over the last two decades had worked with other relevant stakeholders to introduce and implement various initiatives targeted at improving the regulation and development of the market.

According to him, the capital market master plan launched in 2014 has the objective of positioning the market for an accelerated development of the national economy.

It stated, “Many of the initiatives have been successfully implemented while many others are work in progress in line with its objectives.

“Therefore, the continued implementation of the plan will be one of the major focus of the incoming management, while we also seek possible ways of strengthening it for enhanced impact.

”We would equally work towards improved market regulation, surveillance and general development.”

Yuguda assured that the new management would work to the best of its ability to uphold things on ground and consciously seek ways to improve them to the benefit of all stakeholders.

He further stated that investor protection would be at the centre of the initiatives of the new management, warning that any operator that short-changed investors would not go free.

”We want to assure investors that this market is for them and we are ready to do everything to ensure that we increase investor enlightenment through education, robust regulation and fair dealing.

“For those that want to defraud investors, there would be no respite,” he added.

In a remark, the outgoing Acting Director-General, Ms Mary Uduk, said the commission had in the past few years undertaken key reforms and achieved some regulatory milestones.

She expressed the hope that the new management would build on achievements recorded so far.

Yuguda holds a B.Sc. degree in Accounting from Ahmadu Bello University, Zaria and an M.Sc. in Money, Banking and Finance in 1991 from the University of Birmingham, United Kingdom.

He also holds a Certificate in Financial Asset Management and Engineering from the Swiss Finance Institute, Geneva, Switzerland and a Certificate in Investment Performance Management from the CFA Institute, Charlottesville, Virginia, USA.

He is a Fellow of the Institute of Chartered Accountants of Nigeria (ICAN) and a holder of the CFA charter.

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Gold nears long time high of $1,800

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Gold futures rose even higher on Monday, led partly by a weakening U.S. dollar amidst rallies of global stocks.  As measured by the ICE U.S. dollar index DXY, -0.37%,the U.S. dollar was off 0.4%. The implication of a weaker U.S. dollar is that assets that are priced in the currency will become more attractive to buyers that employ other monetary units.  

Global stocks had rallied as a result of a surge in Chinese markets as Beijing’s state-run media put out a front-page editorial that encouraged investors to buy stocks towards supporting domestic markets. Yet, the increase in COVID-19 cases in the U.S has left investors unsure. 

Adrian Ash, director of research at BullionVault explained that “Bullion prices don’t typically jump because of social unrest or geopolitical strife. But if those stresses add to a financial crisis or economic slump, gold prices can spiral higher.” 

For these reasonsgold futures in August rose $2.90, or 0.2%, at $1,792.90 an ounce, following the end of the most-active contract on Thursday according to FactSet data.  

The price of gold had experienced a level of pressure, temporarily losing its gains which had risen as high as $1,799 a little after the economic data released Monday showed that the Institute for Supply Management’s index of nonmanufacturing companies increased to 57.1% in the month of June from the 45.4% attained in May. This was the single largest increase since the commencement of the survey as far back as 1997.

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What expert expects from fixed income market this week

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The Nigerian fixed income market is expected to witness a moderate activity as well as moderate liquidity during the new week. This is according to Nkem Azinge, a Currency Trader at UBA who spoke to CNBC Africa.

According to her, the market is expected to witness an OMO maturity during the week which, by the way, is going to be a short trading week due to public holidays on Monday and Tuesday. The OMO maturity will help maintain balance, even as liquidity in the system will just be moderate.

“Going into next week, there is an OMO maturity coming in. So, that will help to ensure balance. It is a short trading week. So, liquidity will just be moderate,” she said.

Earlier on during the interview, Azinge explained why there was also relative activity in the fixed income last week. According to her, the OMO market witnessed “buying activity as offshore players looked to deploy idle cash. We also saw banks buy as the market opened liquid.”

However, the trend reversed by Thursday because investors took advantage of lower yield in the market to “take profit in anticipation of the PRR debit that was expected” and CBN’s FX auction.

On the other hand, the bond market witnessed mixed sentiments last week. This is because while a number of people took profit on their auction, others sold off in anticipation of a possible increase in supply.

In the FX market, the CBN re-opened its whole bill auction by pumping as much as $72 million into the market. This helped to ensure liquidity in the market.

Azinge noted that it had been more than two months since such an auction occurred, a situation that led to very limited supply in the FX market. Therefore, the auction was a welcome development even as it indicated that the apex bank is now ready to meet growing dollar demands by Nigerians.

Note that the CBN’s Monetary Policy Committee (MPC) meeting is slated to take place on Thursday. This is also expected to influence activities in the fixed income market during the new week.

Watch Azinge’s entire interview with CNBC Africa by clicking here.

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