The Central Bank of Nigeria (CBN) has published its Treasury Bills programme for September – November of 2019, indicating that it planned to raise about ₦1 trillion in cash.
The disclosure was made by the Central Bank in the Treasury bill programme document released on its website, covering the last quarter of 2019.
The details: A close look into the breakdown shows that N90.6 billion will be raised in the 91-day maturity period, N90.2 billion for 182 days while N821.8 billion for 364 days maturity period.
Basically, the CBN sells treasury bills on a bi-weekly basis to investors and is one of the safest investments available. Interests are paid upfront and the principal paid in full upon maturity.
Understanding Treasury Bills: Basically, when the government is going to the financial market 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 shorter 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.
[READ MORE: CBN issues guidelines to Finance Institutions on establishment of Subsidiaries and SPVs]
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 your 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 is set as a percentage.
What you should know: Treasury bills are mostly sourced from financial institutions. Once again, the bank issues treasury bills regularly as a control measure to help banks mop up excess liquidity and control the money supply.
Meanwhile, the CBN has been working on plans to see commercial banks participate less in the primary market Treasury Bills auction, however, this can only take effect when the Central Bank issues an official circular to that effect.
In the meantime, you can still visit your bank as commercial banks can still leverage on investment in Treasury Bills and bonds while the CBN unveils its final strategies regarding bank participation in buying government securities.
[READ FURTHER: CBN says commercial banks can invest in Treasury Bills for now]
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