Treasury Bills are Monetary Policy instrument issued by the government through the CBN to finance the national debt and/or control the amount of money in circulation.
Treasury bills are often referred to simply as T-bills or NTB in Nigeria are short term debt obligations of the Government that have maturities of one year or less. Maturities for NTB are usually 91 days, 182 days, or 364 days.
Treasury bills are sold at a discount from face value and do not pay interest before maturity. The interest is the difference between the purchase price of the bill and the amount that is paid to you either at maturity (this amount is the face value), or when you sell the bill prior to maturity at the secondary market.
Treasury bills are a short-term securities can easily be converted into cash because facilities exist in financial institutions for enhancing the liquidity of the instruments. The securities can be traded without unduly affecting their market price while transfer is by simple delivery.
In view of the capability and willingness of the issuer (Federal Government) to meet payments obligations as and when due. Treasury bills investments are considered to be the safest in the market.
Benefits of the Treasury bills are:
- Yield on investment is realizable upfront and can be automatically reinvested for a higher income.
- Income on investment is competitive with returns on other money market instruments of similar maturities.
- Treasury bills have zero-default risk.
- Income on investment is tax-free.
- The securities can be used as collateral for short-term borrowing from banks and other financial institutions.
- They are bearer securities and negotiable
The applicable procedures for investment vary from one market to the other.
Primary market Procedure for investing in treasury bills:
- All investments are by auction.
- Subscriptions at this market are for 91,182 and 364 days
- An advertisement, inviting bids for the securities is placed in selected national dailies in advance of the auction.
- The amount of Treasury bills securities being applied for must have a minimum value of N10,000 and in multiples of N1,000 thereafter.
- Interested investors should obtain and complete application forms through Banks, and are submitted on Mondays on the prescribed printed forms. The Banks then submit to CBN before the bid date.
The Apex bank as part of its mandate as the government bank releases Treasury bills (Monetary policy instrument) calendar on a quarterly basis.
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