Investing in Treasury Bills

Omolabake  Fasogbon

In the last few months there have been an unprecedented subscription of Nigerian Treasury Bills (NTBs).

Treasury bills’ transactions rose to N23.75 trillion in the first four months of 2024, compared to N6.06 trillion in the first four months of 2023.

According to experts, the unusual spike is not farfetched being one of the most paying investment outlets in the country presently.

Naturally, treasury bills (T-bills) offer lower returns compared to other long -term investments like bond.

T-bills are described as discountable instruments used by the Central Bank of Nigeria (CBN) to manage liquidity in the system, usually on a short-term basis. They are considered to have zero default risk as they are issued by the federal government through the CBN. 

They are more of a preferred platform for short-term investors, given also the security, upfront interest, not taxable and tenable as collateral to secure short term loan from banks.

However, the CBN’s rate hike recently, suddenly shifted more attention to T-bills, kind of shadowing all other investment portals. Though it was the apex bank’s last resort to stabilise economy and also calm inflation, it was also a win for most investors who are able protect their investments and reduce the effects of inflation on their purchasing power.

Although T-bills looks good and promising now or later, it would usually not make a good investment choice in some cases. Cashing out of it is strategic and based on the overall intention of the investor. 

For instance, Co-founder and COO of Bamboo, a fintech platform facilitating investment in local and foreign equity, Yanmo Omorogbe, said for the average individuals hoping to make extra income, it is better that they examine their financial situation and the extra income desired before dabbling in T-bills. 

“Generally the key thing to remember is that one would need a significant amount of capital to earn meaningful income and would need to be comfortable with locking up this capital for up to a year to maximise your passive income,” she said.  

On whether to opt for saving or invest in T-bills whose return comes juicy than the former, Omorogbe who led Bamboo recently to upgrade its operations to facilitate trade in T-bills said it was not advisable to be carried away by the juicy perks on investment at the detriment of life. 

However, she pointed out that a ‘regular saver’ stands a good chance in both options but would have to weigh choice on prevailing situation. 

“Savings products will typically have easier liquidity and more flexibility than T-Bills, while T-Bills will have higher returns than savings. So it is a good idea to keep near-term expenses and emergency funds in savings and then use T-Bills for longer-term investments.

“Usually, the longer the maturity of the T-Bills, the higher the rate of return. Thus, to make the best of T-Bills, it is best advised that investors purchase the longest tenor they can”, she enlightened further. 

The investment analyst strongly recommended T-Bills to investors looking to preserve capital, even with the present inflation rate of 33 percent. 

“NTBs returns currently beat all other fixed return investment options, and so provide the best opportunity to mitigate against the effects of inflation while preserving capital.

“Investment options that are able to beat inflation right now come with significantly more risk than T-Bills which are backed by the Federal Government”, she clarified.

She explained further that the drive to help Africans grow their wealth from any part of the world inspired Bamboo’s coverage to T-bills which is presently at a beta testing stage for a select group. 

“We intend to roll this out gradually for everyone as we perfect the products to taste based on users’ feedback”, she informed. 

Omorogbe further advised that any investor seeking to minimise risk would be wise to jump at T-bill offering. 

“Those with higher risk portfolios who want to diversify their risk exposures or any investors still unsure of where to invest long-term should consider investing in shorter duration T-Bills which allow them earn decent returns in the short term while they decide on their long-term strategy.

“Finally, shorter duration TBills will also be beneficial for investors who have cash they don’t need in the near-term, this way they’re able to maximise their returns rather than leaving the cash idle.

“An SME could buy T-Bills of various maturities that match his or her projections for when they will need the capital. This is an extremely low risk way to earn predictable, decent returns. On Bamboo, businesses can join our beta program from the comfort of their phone to invest seamlessly”, she enlightened. 

For seasoned investors or beginners whose dealings do not align with T-bills, Omorogbe listed other products they could explore for wealth rather than living their cash idle. 

According to her, offerings like fixed deposit, Nigerian equities and U. S stock market are quite remunerative as available on Bamboo app. 

For instance, “We have a US dollar-denominated fixed income product called Bamboo Fixed Returns which gives investors up to eight per cent annual USD returns.

“For higher risk investors, our app also gives access to invest in the U.S. stock market where shares can be bought and become a part-owner of global companies such as Apple, Microsoft and many more.

“Nigerian equities are also another good investment option and will be soon be available on the app”.