Treasury Bills and Bonds: A Simple 5-Minute Crash Course
Treasury bills and bonds are a low-risk, guaranteed way to invest cash in a short-term, fixed-rate investment. These securities are issued by the government of Nigeria on an ongoing basis.
They have been around for more than 20 years and are safe investments for individuals with high liquidity needs or those who want to diversify their portfolios.
In this article, we will explain what treasury bills and bonds are, the pros and cons, their differences, etc.
What are treasury bills and bonds?
Treasury bills and bonds are two types of securities offered by the Nigerian government to investors. They are also known as T-bills or simply as bills in Nigeria.
Treasury bills are short-term investments that mature in less than one year, while bonds are long-term investments that mature in more than one year.
When can you buy treasury bills and bonds?
Treasury bills and bonds are issued by the CBN. They are sold on a weekly basis, with the first issue being made public on Wednesday and the last one on Thursday. The maturities of treasury bills and bonds range from 91 days, 182 days, and 364 days respectively.
To buy treasury bills or bonds you need to open an account at any bank that has been licensed by the Central Bank of Nigeria (CBN).
What types of treasury bills exist in Nigeria?
Treasury bills are short-term bonds that are issued by the government. They can be bought for a period of 1, 3, 6, and 12 months depending on their maturity date. Treasury bills are usually issued in denominations of N1 million, N2 million, and N5 million.
The only difference between treasury bills and other types of bonds is that treasury bills don’t pay interest but simply keep your principal intact until you want to cash them in or sell them back to the bank at maturity (the end date).
What types of bonds exist in Nigeria?
These are issued by the Federal Government to raise funds for projects and services. They’re different from treasury bills because they pay regular interest, but the interest rate is always fixed for the life of the bond.
These come in various forms; some companies issue them only when they need money for new equipment or factories, while others may offer them to investors as part of their business plan.
When you buy a corporate bond, you’re lending money to an organization that has agreed to pay future returns on your investment with interest rates based on its creditworthiness (or lack thereof).
- Investment bonds:
This type of bond pays interest based on how much risk-free return it offers over time—that means there’s no opportunity cost involved if something goes wrong with your investment!
Investment bonds are often issued by companies that want to raise money for a specific project, such as building a new factory or buying equipment; these types of bonds are usually short-term in nature (three years or less) and have a fixed interest rate.
For example, a company might sell an investment bond that offers 5% per annum in return for buying shares at $1 per share per year until the maturity date arrives.
- Housing bonds:
These are bonds that are issued by government bodies or agencies to help finance new housing projects. For example, a city might issue a housing bond in order to build a new affordable housing development for low-income families; this type of bond is usually long-term (20 years or more) and has a fixed interest rate.
- Education bonds:
These are bonds issued by government agencies or bodies in order to finance new school construction projects. They can be long-term (20 years or more) and have a fixed interest rate; they are typically issued in order to raise money for building new schools, renovating old ones, or upgrading classroom technology.
Bonds are a form of debt so they pay interest. Bonds are issued by a government body, such as a city or county. The interest rate on the bond is set at issuance and does not change over its life.
When someone buys your bond, they are loaning you money—and in exchange for that loan, they get paid interest payments throughout the life of the bond.
Also Read: 5 Ways to Secure Business Funding From International Investors
How do you sell your investments when they mature?
When your investments mature, you can sell them to the issuing bank, a broker, an investor, or a financial institution.
If you decide to sell your investment when it matures, you should know that there are two ways in which it can be done:
- Directly through the issuing bank or broker
You can sell it directly to the issuing bank and they will then reinvest it into another type of bond or bill. The benefit of this is that there are no fees involved in this process but also because if something goes wrong with one bond/bill then all other ones will become worthless too.
This means that if someone else wants their money back at any time without giving anything back themselves first (which would be illegal), then they won’t get anything back because there won’t be any left over after paying taxes on whatever profits were made by selling those bonds/bills instead!
- Through a secondary market such as a stock exchange:
This is just like the first option, except that it’s a little more complicated and takes place in a stock exchange instead of directly with the government. This means that there will be fees involved, but not as much as if you were to do it directly through them.
Pros of investing in treasury bills and bonds.
If you are a Nigerian investor and are tired of dealing with all the complications involved in investing in stocks, bonds, and mutual funds, treasury bills and bonds may be just what you need.
- Treasury Bills (T-Bills) can be used as collateral for borrowing money from banks or other institutions without any risk of defaulting on your loan because they have been guaranteed by the Central Bank of Nigeria (CBN).
- Treasury Bills also provide a convenient opportunity for investors to earn high returns on their investments over time with minimal effort required on their part; simply go about doing your business as usual and let CBN do its magic!
Treasury Bonds (T-Bonds) are long-term instruments similar to T-bills except that they mature after 10 years instead of 6 months like T-Bills do; however this doesn’t necessarily mean more benefits since both types offer similar advantages such as
- No capital gains tax obligation when selling them back into the marketplace at the maturity date, plus
- No dividend tax obligation either if held till maturity date too!
Cons of investing in treasury bills and bonds.
Treasury bills and bonds are attractive options for investors because they offer a high return on investment. However, this comes with a few drawbacks:
- You must pay interest when you purchase treasury bills or bonds.
As long as you keep your investment intact and don’t withdraw it until maturity, the interest will continue to accumulate until maturity.
If you need the money during an emergency situation and don’t have access to your funds, then this could be problematic for you because it means that all of your investments will be worth less than what they were before the emergency struck.
- There is no guarantee that their rates of return will always be higher than inflationary levels (in other words, inflationary increases).
The interest rate can change at any time and the value of your investment can fall as well as rise. This makes these investments virtually impossible for anyone looking for steady income streams over time.
Instead, we recommend doing some research into safe-haven investments like gold coins or silver bars instead!
The treasury bill and bond markets in Nigeria are growing rapidly. Many people are looking for a way to invest their cash that is guaranteed by the government and comes with a low risk of loss.
If you want to make your money work hard for you, then this is the right place to start!