TBill

NairaQuest:
TBill

Kindly educate me.

Where's the education, was really happy too enter the thread, only for me to find no information, pls educate us omn tbills. thanks wheres the education, was really happy too enter the thread, only for me to find no information, pls educate us omn tbills. thanks

Bookielicious:
Where's the education, was really happy too enter the thread, only for me to find no information, pls educate us omn tbills. thanks wheres the education, was really happy too enter the thread, only for me to find no information, pls educate us omn tbills. thanks

An NTB (Nigerian Treasury Bill) is an IOU or debt obligation issued by the government and backed by the governments full faith and credit. Because of the backing, T-Bills are considered the safest securities available within the Nigerian economy. T-Bill mature in a year or less, they do not pay an established rate of interest but are issued at a discount. An investor's return on a T-Bill is the difference between the purchase and subsequent sale price or, the face value paid by the Central Bank, if held to maturity,.

In terms of daily pricing, Tbills are quoted at a discount from face value, with the discount expressed as an annual rate based on a 360-day year but Nigeria quotes on a 365 day year basis. Below is an example of daily Treasury Bill quotation found on the FMDQ web site on August 19th 2015. ( see first attachment)

As can be seen above, the first numbers refer to the bill's maturity date, meaning that the TBill that matures on August the 4th 2016 has 351 days until maturity.

What does the yield translate to in Naira?
Though it is the convention to quote TBills in terms of yield but unfortunately, it is not every one that understands the concept of yield. The issue of yield even becomes more confusing when one begins to unravel the relationship between yield and asset prices, especially fixed income securities. Sometimes it is not that easy to understand why and how the price of a bond or TBill should decrease if the yield widens or increases and vise visa. In this article, I will try as much as possible to explain what those yield stuff mean in terms of Naira value. By so doing the investor gets an idea of how much to expect from a sale of TBill or how much he may have to pay to buy a given TBill. All discussions on this article will be based on the TBill that matures on August 4th 2016, so here we go!
The discount bid, 14.10 percent, is the interest rate that the dealer proposes as a buyer of this bill, if you decide to sell it on August 19th. In that case, he is offering to pay N8, 625.56 for the Treasury bill with a face value of N10, 000 maturing in 351 days. When the bill is held to maturity, the dealer would receive N10, 000, or N1, 374.44 more than the purchase price. That N1, 374.44 represents a 14.1 percent annualized return on a "discount basis,” the return based on the actual amount paid.
The ask or offer quotation, 13.85 percent, is the interest rate that the dealer proposes as a seller of this bill if you want to buy it at the secondary market on August 19th. In that case, you, the seller, would receive N8, 649.93 for a N10, 000 Treasury bill if you accept the 13.85 percent. ( Note that this calculation is done with 360 day convention)

Determining Prices on Bills

There are different ways to go from bid and ask yields to bid and ask prices in Naira for each N10, 000 of face value. All you need to do is to follow the following steps:
(a) Multiply the bid or offer discount (depending on the side of the trade you take) rate by the day to maturity.
(b) Divide the result in step (a) by the day count convention
(c) Subtract the result in step (b) from the number 1
(d) Multiply the answer in the prior step by N10,000 or the notional amount you want to invest or sell
(e) subtract the answer in step (d) from the notional amount to find out how much interest you will get from the investment

Rate of Return
The "yield" is the annualized rate of return if held to maturity, similar to the yield to maturity on a "plain vanilla" government bond. The yield is calculated on a coupon equivalent basis, which takes into account the fact that the investor's true return is based on a purchase amount that is less than the N10,000 face amount. Using the same TBill, the investor, receiving N1,355.61 more at maturity than the price paid (N10,000 minus N8,644.39), obtains a 15.7 percent annualized bond equivalent yield on the bill.

Furthermore, since a decrease in the return or yield indicates an increase in price, this quote shows that the market for this issue improved from the previous day. Note that the red arrow pointing south (down) on the FMDQ quotation indicates that the yield narrowed or indicates a fall in yield which signifies a rise in price

Implication for Decision making:

The inverse relationship between yield and price possesses some implications for decision making. For an investor who is long a treasury bill, meaning the investor has already invested in it, a fall in yield is better as that implies an increase in price, especially when such an investor wishes to sell before maturity. On the other hand, for an investor who is short the asset, or wishing to buy, an increase in yield is better as that will amount to lower price and better return if held to maturity. So depending on what side of the coin you occupy, knowing how to translate yield into Naira prices and knowing the relationship between price and yield will be of immense help in your investment decision. Note that the closer to maturity, the less the effect of yield on the price and the closer to face value the T-Bill price becomes.

Wow! Where can I get these TBill Prices:

In more advanced markets, TBill prices are readily available both on a yield and dollar basis but not so for Nigerian TBills. However, analysts at Quantitative Financial Analytics Ltd, (Nigeria's foremost Number Crunchers) have taken it upon themselves to publish the Naira prices of Tbills on a daily basis.

How to Use the Report
To find out how much a TBill is worth using the report, as a seller, find the TBill you are interested in, find the tosay's bid, divided that by 100 and multiply by your notional or face value. As a buyer, follow the same step but use the today's offer for the corresponding TBill

Get It Daily
If you will like to receive this report ( see second attachment), please leave your email address below so we can send you the report.

really confusing stuff been following but still don't get it

syler360:
really confusing stuff been following but still don't get it

Please let me know what aspect is confusing, this relates to secondary market of treasury bills, not what happends at the auction stage.
It deals with post auction trading and quotation of TBills

Just want explanations as a prospective investor, say for example if one invests N200,000 onTbills, whats the expected return, can u add to Tbills anytime. thanks

Bookielicious:
Just want explanations as a prospective investor, say for example if one invests N200,000 onTbills, whats the expected return, can u add to Tbills anytime. thanks

your expected returns depends on how many months you prefer and the interest rate. Lets say you allow the tbill to mature in 3months ( 91 ) and the interest rate is 10 percent, you will get #4986 for 91days.

Yes it depends on how long you hold it. If you hold it to maturity then it is the difference between what you paid for it and the face value

Using the spreadsheet on Nairaquest post above, multiply 20,000 by the offer price of the treasury bill you want and subtract that from 200,000, that is the interest you will get. It is as simple as that with his spreadsheet but the offer price changes daily
If you need the updated spreadsheet ask for it

fxstory:
your expected returns depends on how many months you prefer and the interest rate. Lets say you allow the tbill to mature in 3months ( 91 ) and the interest rate is 10 percent, you will get #4986 for 91days.

are u saying 200k earns only 4986 after 91days
TOO POOR

OkeyEche:
are u saying 200k earns only 4986 after 91days
TOO POOR

Yea, it is yield and tenor dependent

OkeyEche:
are u saying 200k earns only 4986 after 91days
TOO POOR

that is tbill for you

fxstory:
your expected returns depends on how many months you prefer and the interest rate. Lets say you allow the tbill to mature in 3months ( 91 ) and the interest rate is 10 percent, you will get #4986 for 91days.

But 10percent of 200k is 20k. How is it 4986

Adebaba1:

But 10percent of 200k is 20k. How is it 4986

it is calculated on prorata basis, not on yearly. This means you have to use the month you are investing it on to calculate your interest after getting the yearly interest. You will have to divide the 20k by 365days and then multiply by the 91days or the months you wish to invest it to get your actual interest