The Central Bank of Nigeria (CBN) is scheduled to hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on 5th July 2018. The CBN will be offering N9 billion, N33 billion and N127 billion on 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.
What does this mean?
In the last sale, the CBN sold N6.2 billion in 90-day treasury bills at an interest rate of 10.2%. The bills will mature on the 13th of September, 2018.
Treasury bills worth N50 billion were sold for the 182-day tenor, maturing on the 13th of December, 2018 at an interest rate of 10.5%.
They also sold N124.6 billion 364-day treasury bills, maturing on the 13th of June, 2019 at a rate of 11.5%.
All interests are per annum and payable upfront.
Now let’s look at the sale scheduled for this week.
What is the Minimum Amount I can Buy?
Previously, you could buy for as low as N10,000 and in multiples of N1,000 thereafter. However, this was increased to N50 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 N50 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 N1 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 N50 million and wish to participate directly in the bid, you will have to approach your bank and request a form. You 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 TBs.
If you do not own up to the minimum requirement stipulated by the government, you can approach your bank and hope that your request is eligible to be pooled along with others like you. If it is, you then fill the form stipulating the amount, and duration for your bid.
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 5th July is 11%, then bids falling below this rate will be accepted and those above will be rejected.
Also, you can purchase TBs 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 till 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.