Tag: Treasury Bills

Mr. Appeh Auta is a financial expert with over 32 years experience in commodities trading. In this interview with Ibrahim Apekhade Yusuf he speaks on his experiences on the benefits of trading on treasury bills and other government instruments. Excerpts:

As someone who deals on treasury bills, how have you faired thus far? Is it something you want to recommend to others out there?

Treasury bills are the safest investments in Nigeria and this is because you’re loaning to the government. The Federal Government whoever the president is would have to stand by its obligations or else ruin its ratings in the world. So the Federal Government would never default on a treasury bill, especially because it’s naira-denominated.

From your experience, how much does the government declares in terms of treasury bills coupons?

It may come into the market with about N60-100billion and if it’s not fulfilled, they rollback, hence the higher interest that they’re paying. For instance, in August, never in the history of this country have we seen our treasury bills going into double digits. It used to be 9-11% at the maximum. But since August once it got to 18%, since then it’s been up. So what they’re trying to do is they try to issue it for six months. They pay higher every six months and try to discourage higher rates in the 12 months run because they’ve found out that people are interested in doing the six months waiting because they are going to raise the stakes.

Before now, it used to be that it was upwardly mobile persons who take part in treasury bills. What’s the attraction now?

Well, treasury bills meet what l call an African investment criteria very well because it’s one of the investments that is a discounted investment. I mean, if for the purpose of keeping it simple a treasury bills yield is 15% and if you give N1million, into the treasury bill, 15% of that is a N150,000. So basically what you’re expected to give is N850,000. But at the maturity after one year you’re paid N1million. And it’s tax-free. That’s the beauty of it.

What’s the minimum entry point?

You’ve to meet with your financial institutions. There are capable financial institutions that you need to take advisory from. Most of them have been dealing in these instruments for a long time.

It is in the view of some people that dealing on stocks or securities are lazy man’s investment. Do you share such sentiments?

There are two things you need to look. An investment is neither lazy nor proactive. First and foremost, you’ve to decide how do I secure risk? Taking risk is looking for insurance on how to beat inflation. That the one naira l have today that can buy me a sachet of Omo detergent if Omo detergent goes to two naira that I can still buy that Omo detergent and I don’t have to work any harder. Investment is never a luxury to anybody because all investments have risks associated with it. I can say without any fear of contradiction that the surest pot of investment that we’ve are government securities. But some governments have defaulted in the past. There was a time Brazil that is booming now defaulted on its obligations. It has happened. It has happened in Argentina. The only thing we’re saying is that fewer governments have defaulted and once they default, they clear their names by giving an extended period to pay. What’s the advantage? If you buy and sell stocks, you make a gain. But you’re expected to pay tax on your gain. With treasury bills or government bonds, whether the Federal or State Governments bonds, you’re excluded from taxation. So now, buying stocks is a riskier investment than this other one (treasury bills or securities). However, the yield factor of a stock has a greater potential because it’s infinite. But in the case of treasury bills, it’s already capped. But most people investing in treasury bills are doing it to beat inflation because with inflation at 16%, and interest rates of treasury bills at 18%+, you’re secured. But it could still be a wrong investment if the inflation rate goes much lower next and you’ll be under the water psychologically as a business promoter and financier. But there are stocks like the Okomu oil l see them continue to appreciate. Their appreciation level gives you about 30% plus the dividends they pay. Nigerian Breweries is the same. Nestle is the same. Guinness has dropped so maybe it’s a good time to buy. Cadbury shares and all the foods companies’ shares are dropping so maybe this is the time to buy. Of course, if you’re a patient capital and you’ve money that is not for school fees, not for rent or anything that would come. So now market in Nigeria today is a mid and short term investment. Most consumer companies, most of them are going to lose money. The ones that are going to do well are the ones that have import substitution, which are the palm oil companies, etc.

Anybody who says investment is a lazy man’s thing has not invested money anywhere. Every investment is the risk.

These days more and more people are embracing government securities, especially treasury bills as an investment window whether to shore up capital both for the short, medium to long term, report Ibrahim Apekhade Yusuf and Omolara Akintoye

Like the beautiful bride, treasury bills also referred to as TBs are fast becoming major attraction for prospective investors out there.

What are TBs?

Treasury Bills (TBs) are a type of government securities issued on behalf of the Federal Government by the Central Bank of Nigeria (CBN) to control money supply in the economy. TBs, which fall under money market instruments, are mostly debt note with a promise to pay a stipulated interest rates and the principal at a predetermined date.

However, unlike other government securities such as Federal Government of Nigeria (FGN) Bonds and Federal Government Development Stocks (FRNDS) which are long term in nature, TBs are short term securities issued at a discount for a tenor ranging from 91 days (three months), 182 days(six months) and 364 days(one year).

Besides, yield and income on investment is realisable upfront and can be automatically reinvested for a higher income. Yield/income on investment is competitive with returns on other money market instruments of similar maturities. The securities have zero-default risk. Yield/Income on investment is tax-free. The securities can be used as collateral for short-term borrowing from banks.

Modus operandi

Taking a hypothetical situation, if you buy T-bills worth of N500,000 at 10 per cent discount rate, CBN will debit your account with N450,000, leaving a balance of N50,000.

“This means that your interest of N50,000 has been paid to you upfront. When your investment matures, you are still paid your N500,000.This shows that you were actually paid N550,000 for your investment of N500,000”, says praticalbusinessideas.com.

“If you are in urgent need of funds, you may sell your T-bills before it matures, using the OTC market. Whether you will sell for more or less of your face value depends on the forces of demand and supply. Here is an instance; a N505,000, (higher value) provided your face value is trading at a higher price. However you may have to sell at a loss (N545,000) if your face value is trading at a lower price.”

It is however instructive to note that T-bills can be purchased both at the primary and secondary markets. The following steps are the procedures laid down by the apex bank both at the primary and secondary markets. This is where new issues of securities are available for sale. The market for new issues in all government securities is the Issues Office, CBN. Secondary market is a market for the trading of previously issued securities. Hence, tenors of the securities traded are shorter than the original tenors. In the case of treasury bills, the market is within and outside the CBN. The market in the CBN is located at the Securities Dealing Office and Settlement and Control Office, while the outside markets include banks and discount houses.

Codified rule book for TBs

The apex bank regulates the sale and auctioning of TBs. However, FMDQ OTC Securities Exchange (FMDQ) an organisation with the strategic intent of bringing about revolutionary changes and fostering the development of the Nigerian financial markets also has dual responsibilities of a securities exchange and self-regulatory organisation (SRO) and brings together Nigeria’s fixed income and currency operations under a single market governance structure.

FMDQ has adopted the existing Financial Markets Dealers Association (FMDA) guidelines which complement the provisions of the Central Bank of Nigeria’s (CBN) 2007 Money Market Dealership System in Nigeria by establishing operational procedure.

TBs are best buys any day

The Central Bank of Nigeria (CBN), has since built a huge industry around the sale of security instruments. According to the information sourced from the website of the CBN, the apex bank is set to roll over TBs worth N814.79 million in over the next three months.

A cursory view of the Treasury Bills issuance programme for the fourth quarter of the year released by the apex bank, showed that 91-day bills worth N215.14 million will rolled over by December 3rd, just as 182 and 364- day TBills worth N193.64 million and N406.01 million will also mature and be rolled over about the same time.

In October, a total of N265.25 million worthy of TBills will mature and be rolled over while the two TBills auction in November will see the maturing and roll over of N242.9 million. Only one TBills auction will be held in December according to the CBN timetable with a value of N129.17 million.

Shedding light on this development, Mr. Sewa Wusu, Head of Research at Sterling Capital observed that it is not a new trend. “It is normal for the CBN to rollover Treasury Bills, which is a monetary instrument, that are maturing.”

Justifying the need for TBs, Mr. Johnson Chukwu, Managing Director/Chief Executive, Cowry Asset Management Limited in an interview with The Nation said: “Treasury bills can be issued by any country if there is any increment in that country to the extent that when treasury bills are issued by the sovereign for instance federal government treasury bills, it is backed by the capacity of that government to pay that currency.”

A government, Chukwu said, “Cannot be caught on an instrument issued in its own currency i.e. the currency it has the capacity to pay. Treasury bills are the most secured debt instrument in any country provided that country is not under a currency union and the debt instrument or the treasury bill is issued in the currency which the country can pay.”

Shedding light on foregoing, Mr. Olubunmi Asaolu, CFA, Head, Equity Research, FBN Capital Limited, demands for FGN Bonds, including TBs remain healthy, little wonder many people are fast becoming attracted to them.

Asaolu who spoke at the FBNQuest Investor Conference 2016 last Thursday, further noted that at a time other investment windows are risk-prone, TBs offers a lot of promise in terms of protection from the volatility of the money market.

 

These days more and more people are embracing government securities, especially treasury bills as an investment window whether to shore up capital both for the short, medium to long term, report Ibrahim Apekhade Yusuf and Omolara Akintoye

Like the beautiful bride, treasury bills also referred to as TBs are fast becoming major attraction for prospective investors out there.

What are TBs?

Treasury Bills (TBs) are a type of government securities issued on behalf of the Federal Government by the Central Bank of Nigeria (CBN) to control money supply in the economy. TBs, which fall under money market instruments, are mostly debt note with a promise to pay a stipulated interest rates and the principal at a predetermined date.

However, unlike other government securities such as Federal Government of Nigeria (FGN) Bonds and Federal Government Development Stocks (FRNDS) which are long term in nature, TBs are short term securities issued at a discount for a tenor ranging from 91 days (three months), 182 days(six months) and 364 days(one year).

Besides, yield and income on investment is realisable upfront and can be automatically reinvested for a higher income. Yield/income on investment is competitive with returns on other money market instruments of similar maturities. The securities have zero-default risk. Yield/Income on investment is tax-free. The securities can be used as collateral for short-term borrowing from banks.

Modus operandi

Taking a hypothetical situation, if you buy T-bills worth of N500,000 at 10 per cent discount rate, CBN will debit your account with N450,000, leaving a balance of N50,000.

“This means that your interest of N50,000 has been paid to you upfront. When your investment matures, you are still paid your N500,000.This shows that you were actually paid N550,000 for your investment of N500,000”, says praticalbusinessideas.com.

“If you are in urgent need of funds, you may sell your T-bills before it matures, using the OTC market. Whether you will sell for more or less of your face value depends on the forces of demand and supply. Here is an instance; a N505,000, (higher value) provided your face value is trading at a higher price. However you may have to sell at a loss (N545,000) if your face value is trading at a lower price.”

It is however instructive to note that T-bills can be purchased both at the primary and secondary markets. The following steps are the procedures laid down by the apex bank both at the primary and secondary markets. This is where new issues of securities are available for sale. The market for new issues in all government securities is the Issues Office, CBN. Secondary market is a market for the trading of previously issued securities. Hence, tenors of the securities traded are shorter than the original tenors. In the case of treasury bills, the market is within and outside the CBN. The market in the CBN is located at the Securities Dealing Office and Settlement and Control Office, while the outside markets include banks and discount houses.

Codified rule book for TBs

The apex bank regulates the sale and auctioning of TBs. However, FMDQ OTC Securities Exchange (FMDQ) an organisation with the strategic intent of bringing about revolutionary changes and fostering the development of the Nigerian financial markets also has dual responsibilities of a securities exchange and self-regulatory organisation (SRO) and brings together Nigeria’s fixed income and currency operations under a single market governance structure.

FMDQ has adopted the existing Financial Markets Dealers Association (FMDA) guidelines which complement the provisions of the Central Bank of Nigeria’s (CBN) 2007 Money Market Dealership System in Nigeria by establishing operational procedure.

TBs are best buys any day

The Central Bank of Nigeria (CBN), has since built a huge industry around the sale of security instruments. According to the information sourced from the website of the CBN, the apex bank is set to roll over TBs worth N814.79 million in over the next three months.

A cursory view of the Treasury Bills issuance programme for the fourth quarter of the year released by the apex bank, showed that 91-day bills worth N215.14 million will rolled over by December 3rd, just as 182 and 364- day TBills worth N193.64 million and N406.01 million will also mature and be rolled over about the same time.

In October, a total of N265.25 million worthy of TBills will mature and be rolled over while the two TBills auction in November will see the maturing and roll over of N242.9 million. Only one TBills auction will be held in December according to the CBN timetable with a value of N129.17 million.

Shedding light on this development, Mr. Sewa Wusu, Head of Research at Sterling Capital observed that it is not a new trend. “It is normal for the CBN to rollover Treasury Bills, which is a monetary instrument, that are maturing.”

Justifying the need for TBs, Mr. Johnson Chukwu, Managing Director/Chief Executive, Cowry Asset Management Limited in an interview with The Nation said: “Treasury bills can be issued by any country if there is any increment in that country to the extent that when treasury bills are issued by the sovereign for instance federal government treasury bills, it is backed by the capacity of that government to pay that currency.”

A government, Chukwu said, “Cannot be caught on an instrument issued in its own currency i.e. the currency it has the capacity to pay. Treasury bills are the most secured debt instrument in any country provided that country is not under a currency union and the debt instrument or the treasury bill is issued in the currency which the country can pay.”

Shedding light on foregoing, Mr. Olubunmi Asaolu, CFA, Head, Equity Research, FBN Capital Limited, demands for FGN Bonds, including TBs remain healthy, little wonder many people are fast becoming attracted to them.

Asaolu who spoke at the FBNQuest Investor Conference 2016 last Thursday, further noted that at a time other investment windows are risk-prone, TBs offers a lot of promise in terms of protection from the volatility of the money market.

 

Mr. Appeh Auta is a financial expert with over 32 years experience in commodities trading. In this interview with Ibrahim Apekhade Yusuf he speaks on his experiences on the benefits of trading on treasury bills and other government instruments. Excerpts:

s someone who deals on treasury bills, how have you faired thus far? Is it something you want to recommend to others out there?

Treasury bills are the safest investments in Nigeria and this is because you’re loaning to the government. The Federal Government whoever the president is would have to stand by its obligations or else ruin its ratings in the world. So the Federal Government would never default on a treasury bill, especially because it’s naira-denominated.

From your experience, how much does the government declares in terms of treasury bills coupons?

It may come into the market with about N60-100billion and if it’s not fulfilled, they rollback, hence the higher interest that they’re paying. For instance, in August, never in the history of this country have we seen our treasury bills going into double digits. It used to be 9-11% at the maximum. But since August once it got to 18%, since then it’s been up. So what they’re trying to do is they try to issue it for six months. They pay higher every six months and try to discourage higher rates in the 12 months run because they’ve found out that people are interested in doing the six months waiting because they are going to raise the stakes.

Before now, it used to be that it was upwardly mobile persons who take part in treasury bills. What’s the attraction now?

Well, treasury bills meet what l call an African investment criteria very well because it’s one of the investments that is a discounted investment. I mean, if for the purpose of keeping it simple a treasury bills yield is 15% and if you give N1million, into the treasury bill, 15% of that is a N150,000. So basically what you’re expected to give is N850,000. But at the maturity after one year you’re paid N1million. And it’s tax-free. That’s the beauty of it.

What’s the minimum entry point?

You’ve to meet with your financial institutions. There are capable financial institutions that you need to take advisory from. Most of them have been dealing in these instruments for a long time.

It is in the view of some people that dealing on stocks or securities are lazy man’s investment. Do you share such sentiments?

There are two things you need to look. An investment is neither lazy nor proactive. First and foremost, you’ve to decide how do I secure risk? Taking risk is looking for insurance on how to beat inflation. That the one naira l have today that can buy me a sachet of Omo detergent if Omo detergent goes to two naira that I can still buy that Omo detergent and I don’t have to work any harder. Investment is never a luxury to anybody because all investments have risks associated with it. I can say without any fear of contradiction that the surest pot of investment that we’ve are government securities. But some governments have defaulted in the past. There was a time Brazil that is booming now defaulted on its obligations. It has happened. It has happened in Argentina. The only thing we’re saying is that fewer governments have defaulted and once they default, they clear their names by giving an extended period to pay. What’s the advantage? If you buy and sell stocks, you make a gain. But you’re expected to pay tax on your gain. With treasury bills or government bonds, whether the Federal or State Governments bonds, you’re excluded from taxation. So now, buying stocks is a riskier investment than this other one (treasury bills or securities). However, the yield factor of a stock has a greater potential because it’s infinite. But in the case of treasury bills, it’s already capped. But most people investing in treasury bills are doing it to beat inflation because with inflation at 16%, and interest rates of treasury bills at 18%+, you’re secured. But it could still be a wrong investment if the inflation rate goes much lower next and you’ll be under the water psychologically as a business promoter and financier. But there are stocks like the Okomu oil l see them continue to appreciate. Their appreciation level gives you about 30% plus the dividends they pay. Nigerian Breweries is the same. Nestle is the same. Guinness has dropped so maybe it’s a good time to buy. Cadbury shares and all the foods companies’ shares are dropping so maybe this is the time to buy. Of course, if you’re a patient capital and you’ve money that is not for school fees, not for rent or anything that would come. So now market in Nigeria today is a mid and short term investment. Most consumer companies, most of them are going to lose money. The ones that are going to do well are the ones that have import substitution, which are the palm oil companies, etc.

Anybody who says investment is a lazy man’s thing has not invested money anywhere. Every investment is the risk.