Treasury bills and bonds are financial instruments issued by the federal government of a country. The Nigerian government issues these security instruments to fund its various activities. Treasury bills are used to raise short-term funds, while bonds are issued to raise long-term funds.

What are Treasury Bills?

Treasury bills are the safest investment instruments because the federal government of Nigeria guarantees them. It is a way the government borrows money from members of the public to fund its ongoing expenses and debts.

Under the umbrella of the central bank of Nigeria, the federal government of Nigeria issues treasury bills, usually through a competitive bidding process, to provide short-term financing for government budget deficits. Treasury bills are the most liquid securities in the money market.

They are short-term debt securities normally issued at a discount and sold at par. The minimum issuing price for treasury bills is 10,000 Nigerian Naira, which matures within a year. There are different maturity dates and rates as there are different treasury bills. The maturity periods are usually 91 days, 182 days, or 364 days.

What are Federal Government Bonds or FGN Bonds?

On the other hand, federal government bonds are long-term debt security instruments issued by the Debt Management Office (DMO) on behalf of the federal government of Nigeria. The bond instrument is considered a risk-free debt instrument because the federal government of Nigeria backs it up. The government is obligated to pay the investors or bondholders the agreed interest and the principal as and when due.

Sometimes, the federal government issues special-purpose bonds. Special purpose bonds are issued to meet some specific needs, such as a special-purpose bond issued in 2006 to selected banks to meet the settlement of 75 billion naira pension arrears which had five money banks participating in the private placement. Another example was the bonds issued for the funding of Abuja Expressways and the settlement of debts owed to local contractors worth 91.7 billion nairas.

Federal Government bonds have the following features;

  1. Maturity period: FGN bonds have a minimum of 2 years and a maximum of 10 years maturity period.
  2. Federal government bonds have zero risk as the government does not fail in paying interest owing to its subscribers at the fixed date.
  3. The minimum subscription rate for FGN bonds is 50,001,000.00 naira.
  4. Interest yield: some FGN bonds have fixed interest rates that are paid semi-annually, that is, twice a year. In contrast, others have floating interest rates that fluctuate around a reference rate based on specific parameters.





Reasons Government issues Treasury Bills and Bonds:

Some of the reasons the federal government issues securities include;

  1. To enhance and promote its citizens’ savings and investment opportunities.
  2. To diversify the sources of finance available to the government.
  3. To service maturing debts obligations of the federal government of Nigeria,
  4. To finance government budget deficits.
  5. To sustain the development of the financial market in Nigeria.

Procedures for Investing in Federal Government Treasury Bills

Individuals, banks, firms, institutions, etc., can purchase the federal government Treasury bill. One can invest in treasury bills through a stockbroker or a commercial bank that the central bank of Nigeria licenses. As an investor, you will be required to fill out your personal information and the amount you are willing to invest, which usually depends on the stock dealer and your bid rates.

An advertisement is usually placed by the federal government on selected national newspapers and the CBN website, inviting bids for the securities in advance of the auction. The number of treasury securities being applied for must be valued at N10,000 minimum and in multiples of N1,000 after which Interested investors will proceed to obtain and complete application forms through authorized dealers (Banks and Discount Houses and Stockbrokers). Tenders for treasury Bills are usually submitted on Mondays, Tuesdays, and Wednesdays before 1.30p.m in a printed form as prescribed by the authority and in a sealed envelope marked “TENDER FOR BILLS”.

Subscribers that were successful at the auction are allotted applying the multiple price auction system by which they pay for their allotment at their price. The result of the tender is usually announced before the close of business on Wednesdays while allotment letters are issued to successful tenders on Thursdays and payment for the amount of the successful tender must be made in full to the CBN not later than 1.30 p.m on the issue date being Thursdays.

Treasury bills are issued through an auction bidding process that occurs every week. The different bidding auctions for treasury bills are;

Non-Competitive Bidding Auction

The non-competitive bid is the most preferred by investors because it guarantees the full recovery of the amount invested in the bill at the expiration of the maturity period. The investor, in a non-competitive bid always agrees to accept the discount rate determined at auction and the yield received always equals the average auction price for the Treasury bill sold.

Competitive Bid

In a competitive bid, every bid submitted states the lowest rates that the investor is willing to accept. That is, an investor buys treasury bills at a specific rate that he is willing to accept. Bids accepting the lowest discount rates are always taken first.

Secondary Market    

Treasury bills can also be traded in the secondary market; this makes it highly liquid security. Individuals or corporate bodies can purchase treasury bills from other investors that hold previously issued treasury bills and are willing to exchange the same in order to get back their investment.


Procedure For Investing In FRN Bonds

An advertisement is placed on the national dailies, inviting interested persons to bids for the offer securities. Interested investors usually obtain and complete application forms through authorized dealers such as Banks and Stockbrokers, and CBN branch offices.

Federal Government bonds are traded the same way stocks are traded in the Nigerian Stock Exchange. Bonds can be bought in the primary market where you apply for newly issued bonds directly from the government through the approved institutions.

The bids exercise is carried out every month by the Debt Management Office (DMO) and the Primary Dealer Market Makers (PDMMs) are responsible for submitting bids for themselves and their clients, and in the secondary market where you can purchase bonds that were already in existence from other investors. The purchase of bonds in the secondary market is usually done in the floor of the Stock Exchange Market. And trading is done on a daily basis.


Government Treasury bills and bonds are risk-free debt instruments issued by the federal government through the CBN to generate funds to finance Government projects, whether short-term or long-term. These debt securities also offer public members who are interested in making extra income to invest their money by applying and paying for any of the debt instruments that will yield interest on the principal invested over a certain period. Investing in these securities guarantees that you will surely recover your money because it has legal backing from the Federal Government of Nigeria.

Both securities are highly liquid. This means you can sell them and recover your investment before the maturity date. This could be done in the secondary market with the aid of the authorized brokers dealing in the market. The right to own debt security is not limited to any class of persons. Every individual, firm, corporate body, etc. can purchase these instruments if they choose to.


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