How to bid for this week’s Treasury Bills sale

The Central Bank of Nigeria (CBN) is scheduled to hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on 28th November, 2018.

It will be offering ₦22.7 billion, ₦24.8 billion and ₦103.07 billion for 91-day, 182-day, and 364-day maturity periods respectively.

Before learning how to participate in this sale, here is a breakdown of the previous sale.

Last sale

In the last sale, the CBN sold ₦3.38 billion in 91-day treasury bills at an interest rate of 10.95%. The bills will mature on 14th February 2019.

Treasury bills worth ₦16.92 billion were sold for the 182-day tenor, maturing on 16th May, 2019 at an interest rate of 13.16%.

It also sold ₦107.93 billion 364-day treasury bills, maturing on 14th November 2019, at a rate of 14.45%.

What is the Minimum Amount I can Buy?

Previously, you could buy for as low as ₦10,000 and in multiples of ₦1,000 thereafter. However, this was increased to ₦50 million plus in 2017. You can still participate in this bid by approaching your bank and participating in the pooling fund option.

Here, the bank pools funds from others like you, who do not have the minimum of ₦50 million plus required to participate in a direct bid.

Some banks also have their own minimum limits for pooling funds which can be as high as ₦1 million. You will need to know if your bank’s minimum requirement is financially compatible with yours so that you can bid with them, or shop for another bank with a compatible benchmark.

How Can I Buy Treasury Bills?

Assuming you own more than ₦50 million and wish to participate directly in the bid, you will have to approach your bank and request a form. Fill the form with your personal information, indicating the amount you want to buy, the tenor, and your 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 will be investing in the T-Bills.

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 opening on 28th November is 11%, then bids falling below this rate will be accepted and those above will be rejected.

Also, you can purchase T-Bills from the secondary market Over-The-Counter (OTC) through a broker.

Are Treasury Bills Safe?

Buying treasury bills is one of the safest forms of investment; they are backed by the full faith and credit of the Federal Government of Nigeria. They are also tax-free.

What if my funds don’t get pooled?

You still have another option. You can get the bank to sell to you rediscounted treasury bills. This is basically buying from someone else who is in need of funds and not willing to wait until maturity.

Banks typically prefer this option for retail investors who have less than N1 million in cash to invest.

The difference between this and buying from the primary market is that you may not get the same interest rate when compared to those who bought from the primary market. However, the difference is not that huge.

Here is the link to calculate yield on your Treasury Bills.