The Central Bank of Nigeria (CBN) has published its Treasury Bills programme for January–March 2020, indicating that it planned to raise about ₦847.4 billion in cash.
The disclosure was made by the CBN in the Treasury Bill programme document released on its website, covering the first quarter of 2020. The N847.4 treasury bill issued for Q1 2019 represents a drop by N155.2 billion when compared to the over 1 trillion issued in Q4 2019.
The details: The breakdown of the document shows that N86.6 billion will be raised in the 91-day maturity period, N163 billion for 182 days and N597.7 billion for 364 days maturity period.
Basically, the CBN sells T-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.
The CBN’s policy: T-billa 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.
Following an earlier report that the CBN had ordered commercial banks and other financial institutions not to sell treasury bills to individuals and small firms from November 29, 2019, the apex bank has said its directive only affects the Open Market Operations. The development means that the treasury bill is still open to individuals and small firms.
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 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 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.