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How to invest in treasury bills

By Babajide Komolafe

It is one of the safest investment products. Yet many people know little about it. The banks are not also helping matters. They rarely inform or educate their customers about it. And why should they, when it is more expedient for them for the customer to invest his money with them via fixed deposit than investing the money in Treasury bill.

Treasury bills (TBs) are short term government debt instruments. Hence investing or buying TBs is tantamount to lending to government on a short term basis usually below one year. They are issued by the Central Bank of Nigeria (CBN), who is the banker to the government. The government uses TBs to borrow money to finance its expenditure pending receipt of revenue. For example, if the government wants to pay salary for this month, and it is yet to receive the income for the month, it could ask the CBN to help it raise money by selling TBs. The CBN issues the TBs at a specified interest rate, specifying the maturity, usually 91 days (three months).

Though anybody can buy TBs, you have to go through the banks, who act as agents to the CBN.

Also because the banks are mandated to keep a portion of customers deposit in liquid instruments (instruments that can be easily exchange for cash), which is the liquidity ratio; they are the biggest investors in TBs.

In addition to using TBs to borrow money on behalf of the government, the CBN also uses them to control the amount of money in the economy (via the banking system). When the CBN wants to reduce money in the economy (money supply), it sells TBs to the public. The money invested in the TBs automatically leads to reduction in money supply. Also when the CBN wants to increase money supply it buys TBs from the public.

Whenever the CBN issues TBs for any of the above purpose, all or some of the TBs may be purchased.  If all the TBs are not purchased, the CBN warehouses the outstanding TBs, and reissue them at a later date. The reissued TBs are called secondary market TBs, while newly issued TBs are called Primary Market TBs.  Secondary market TBs are also called OMO (Open Market Operation) TBs, and they are mostly used by the


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