Debt Securities
This is what you get if you bid for the first CBN T-Bills auction in June
@centbank will be having its first Treasury Bills #PMA for the month of June 2019 and this is how you can participate.
The Central Bank of Nigeria (CBN) is scheduled to hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on 13th of June 2019. It will be offering ₦5 billion and ₦124.64 billion for 91-days and 364-day maturity periods respectively.
Before learning how to participate in this sale, below is a breakdown of the previous sale.
Last sale: During the last sale, the CBN sold ₦24.4 billion in 91-day treasury bills at an interest rate of 10% and will mature on 29th August 2019. ₦51.23 billion in 182-day treasury bills at an interest rate of 11.95%. The bills will mature on 28th November 2019. It also sold ₦119.85 billion 364-day treasury bills, maturing on 28th May 2020, at a rate of 12.2%.
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 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 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 13th June 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 the yield on your Treasury Bills.
Debt Securities
Commercial Paper value appreciates by N243 billion YOY, hits N539.8 billion in H1, 2020
Commercial Paper value appreciated by 81.9% to N539.8 billion in 45 issuances as of H1, 2020.
Commercial Paper value hits N539.8 billion as of June 2020, as the value appreciated by 81.9% from N296.8 billion in 44 issuances as of H1, 2019 to N539.8 billion in 45 issuances as of H1, 2020. This is according to a recent report by PWC titled, “Nigeria Capital Market Update.”
READ: CBN invests over N120 billion on 320,000 farmers across CTG within four years
As regards industry spread, the financial services sector accounted for 32% of the proceeds raised as of H1 2020, followed by the consumer goods sector representing 26% of total proceeds. ICT raised 19% and Industrial goods contributed 18%.
READ: Zenith Bank’s Profit After Tax in H1,2020 rises by 16.8% to N103.8 billion
In terms of yearly appreciation, Commercial Paper value has maintained an upward trend, recording N114 billion as of the end of 2016, N221 billion in 2017, N402 billion in 2018, and N540 billion in H1, 2020.
What this means
Activities in the Commercial Paper market maintained its upward trajectory as more blue-chip companies continue to access short term funding from a diversified investor base, through the capital market and on favorable terms.
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What you should know
Commercial Paper is a commonly used type of unsecured, short-term debt instrument issued by corporations, typically for the financing of payroll, accounts payable and inventories, and meeting other short-term liabilities. Maturities typically last several days and rarely range longer than 270 days.
It is usually issued at a discount from face value and reflects prevailing market interest rates.
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Use Advanced Financial Calculators on Nairametrics
Debt Securities
Nigerian Treasury Bills drop to 2% per annum
The latest data from Nigeria’s Treasury bill auction shows that Nigeria’s 364-day reduced by 2%.
The latest data from Nigeria’s Treasury bill auction shows that Nigeria’s 364-day reduced by 2%. On the other hand, Stop rates moderated slightly for the 91-day tenors and 182-day tenors. The 91-day bills had stop rates of 1 % and 182-day bills also went by 1%.
READ: Real estate: Experts lament over challenges in the industry
At the auction, the Debt Management Office (DMO) sold N12.76 billion on the 91-day paper, N4.5 billion on the 182-day, and N107.6 billion on the 364-day bill despite huge demand from Investors.
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What you need to know
Basically, when the government goes to the financial markets to raise money, it can do it by issuing two types of debt instruments – Treasury Bills and Government Bonds. Treasury bills are issued when the government needs money for a short period, while Bonds are issued when it needs debt for more than say five years.
- The issuance of treasury bills is also used as a mechanism to control the circulation of funds in the economy.
- Treasury bills have a face value of a certain amount, which is what they are actually worth.
- However, they are sold for less. For example, a bill may be worth N10,000, but you would buy it for N9,600.
- Every bill has a specified maturity date, which is when you receive the money back.
- The government then pays you the full price of the bill (in this case N10,000), giving you the opportunity to earn N400 from your investment. The amount that you earn is considered as the interest, or your payment for lending money to the government.
- The difference between the value of the bill and the amount you pay for it is called the discount rate and it is set as a percentage.
READ: Where to invest your N5m to N500m safely and securely
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What they are saying
Peter Omoregie, CFA, Head Proprietary Trading at CardinalStone Partners Limited, in a phone interview with Nairametrics, explained why investors oversubscribed Nigeria’s Treasury bills in spite of low rates.
“The CBN continues with de-leveraging its balance sheet and favoring its growth policies over the attraction of FPI money, which is good for businesses and the country at large. Surprisingly, we had a huge subscription on the long end at these low rates. The local institutional investors are addicted to Tbills like a junkie on cocaine, they don’t know how or when to stop.”
READ: Real Estate Developers express fear over selection process of CBN’s N200 billion Housing Fund
READ: COVID-19: How CBN policies helped prevent the collapse of the Nigerian economy – Oscar Onyema
Why this matters
The massive disparity between the subscriptions and the offers recorded suggests investors are willing to earn a negative real return, compared to the higher risk in other assets such as stocks and real estate. Basically, the CBN sells T-bills on a bi-weekly basis to investors and it is one of the safest investments available. Interests are paid upfront and the principal paid in full upon maturity.
Explore Data on the Nairametrics Research Website
Debt Securities
Nigeria will not issue Eurobonds, says Vice President Yemi Osinbajo
Vice President Yemi Osinbajo disclosed recently that Nigeria will not be issuing Eurobonds.
Vice President Yemi Osinbajo disclosed recently that Nigeria will not be issuing Eurobonds due to their costs, and was considering further options in capital to boost Africa’s largest economy in the face of a looming recession.
The Vice President said this in a report credited to Reuters News.
“We are not likely going to explore again the Eurobond market because we are trying to avoid commercial borrowing,” Osinbajo said.
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Africa’s largest economy has been on the squeeze, with the worst pandemic known to man, disrupting Nigeria’s major export earning, crude oil, and the poor participation of foreign portfolio investors which crunched Nigeria’s earning at unprecedented levels.
However, Michael Nwakalor, a Macroeconomist at CardinalStone Research, in a note seen by Nairametrics gave key vital insights on why Nigeria’s fiscal players might consider such a move in view of taking the FGN 2021 budget into play.
READ: Nigeria makes sudden U-turn, suspends external borrowing from international debt market
“In our view, given its ever-widening budget deficit and concurrent FX needs, Nigeria may be tempted to revisit the Eurobond market next year after having shelved plans to raise $3 billion in 2020 following the COVID-19 outbreak. However, a return to the international debt market may, ultimately, depend on external financing conditions. Even though weaker oil prices and domestic FX liquidity issues are concerning, the Fed’s long-term dovish posture and relative stability in the Eurobond market suggest that a few providers of long-term capital may still be up for some risks. That said, investors are likely to demand a premium to pre-pandemic levels of c.7.5%, on duration, for a potential Eurobond issuance,” it stated.
READ: $945 million worth of BTCs options expiring this week
If recent body language, statements by Nigeria’s fiscal policymakers are taken into full consideration, it’s likely Nigeria might consider multinational lenders like World Bank rather than going to the overseas debt market, as the nation seeks cheaper options in building its commodity-dependent economy.
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