CBN Treasury Bills: What You Should Know

CBN Treasury Bills are short-term debt instruments issued by the Central Bank of Nigeria (CBN) on behalf of the Federal Government of Nigeria.

They are used to finance the government’s budget deficit and to manage the money supply in the economy.

Treasury bills are also attractive investment options for investors who seek low-risk and high-return opportunities.

What are the benefits of investing in CBN Treasury Bills?

• They are risk-free, as they are backed by the full faith and credit of the Federal Government of Nigeria.
• They offer competitive interest rates, which are determined by the market forces of demand and supply.
• They are tax-exempt, meaning that the interest income earned from them is not subject to withholding tax or personal income tax.
• They are highly liquid, as they can be easily bought and sold in the secondary market or redeemed at maturity.
• They are available in different tenors, ranging from 91 days to 364 days, to suit the preferences and needs of different investors.

How can I invest in CBN Treasury Bills?

• You can invest in CBN Treasury Bills through the primary market or the secondary market.
• The primary market is where the CBN auctions the treasury bills to the public every two weeks. You can participate in the auction through any authorized dealer, such as a commercial bank or a discount house. You will need to have a bank account and a CSCS account (Central Securities Clearing System) to invest in the primary market. You will also need to indicate the amount you want to invest, the tenor of the treasury bill, and the interest rate you are willing to accept. The minimum amount you can invest in the primary market is N50,000 and in multiples of N1,000 thereafter.
• The secondary market is where the treasury bills are traded among investors after the auction. You can buy or sell treasury bills in the secondary market through any authorized dealer or broker. You will need to have a bank account and a CSCS account to invest in the secondary market. The price and yield of the treasury bills in the secondary market are determined by the market forces of demand and supply. The minimum amount you can invest in the secondary market is N1,000 and in multiples of N1,000 thereafter.

What are the current interest rates and prices of CBN Treasury Bills?

• The interest rates and prices of CBN Treasury Bills vary depending on the tenor, the demand and supply, and the prevailing market conditions. You can check the latest auction results and market rates from the CBN website or from any authorized dealer or broker.
• As of February 9, 2024, the CBN sold a record N1.8 trillion worth of Treasury Bills at an auction, nearly two times the N1 trillion on offer. The 364-day treasury bills stop rates spiked to 19% per annum, the first clear signal that the central bank was targeting exchange rate stability. The 182-day treasury bills stop rates also rose to 18% per annum, while the 91-day treasury bills stop rates remained at 17.24% per annum. The high interest rates attracted a lot of investors, especially foreign portfolio investors, who saw the opportunity to earn high returns in naira and dollars.

What are the risks and challenges of investing in CBN Treasury Bills?

• While CBN Treasury Bills are generally considered risk-free, they are not entirely without risks and challenges. Some of the potential risks and challenges include:
  • Exchange rate risk: If you are a foreign investor or a local investor who plans to convert your naira earnings to another currency, you may face the risk of losing value due to fluctuations in the exchange rate. The naira has been depreciating against the dollar and other major currencies in recent years, due to the fall in oil prices, the COVID-19 pandemic, and the CBN’s policies. This means that you may receive less foreign currency for your naira earnings when you convert them at the end of the investment period.
  • Inflation risk: If you are a local investor who plans to spend your naira earnings in the domestic market, you may face the risk of losing purchasing power due to inflation. The inflation rate in Nigeria has been rising steadily, reaching 18.55% in December 2023, the highest in four years. This means that the goods and services that you can buy with your naira earnings may become more expensive over time, reducing your real return on investment.
  • Liquidity risk: If you need to access your funds before the maturity date of the treasury bill, you may face the risk of not being able to sell your treasury bill in the secondary market at a favorable price. The liquidity of the treasury bills market depends on the availability of buyers and sellers, the volume of transactions, and the market conditions. Sometimes, the market may be illiquid, especially for longer tenors, making it difficult for you to find a buyer or forcing you to sell at a lower price than you expected.
  • Opportunity cost: If you invest in CBN Treasury Bills, you may miss out on other investment opportunities that may offer higher returns or better benefits. For example, you may forego investing in the stock market, which may have higher potential for capital appreciation, or in real estate, which may have higher rental income and tax advantages. You may also forego investing in other fixed income securities, such as bonds or corporate notes, which may have longer tenors, higher interest rates, or better security features.