The 1.19% real return: Is investing ₦100,000 in Nigerian Treasury bills still worth it?

Investing ₦100,000 ($75.5) in Nigerian Treasury bills (T-bills) remains an intriguing proposition amidst inflation's erosion of purchasing power. T-bills are short-term debt securities issued by the Nigerian government, maturing in a year or less, and sold through auctions managed by the Debt Management Office (DMO) and the Central Bank of Nigeria (CBN).

Institutional investors took advantage of the recent September 9 auction, bidding an impressive ₦2.64 trillion ($1.99 billion), with 364-day bills accounting for 91% of total subscriptions. For retail investors, the process revolves around wealthtech platforms, asset managers, and stockbrokers consolidating retail capital and placing orders through primary dealers, who then participate in the auctions.

The clearing rate is subject to competition with alternative money market instruments and the CBN's Monetary Policy Rate (MPR). The relatively low returns on T-bills have compelled the government to offer higher yields to attract sufficient borrowing. At the latest auction, the 364-day bill's stop rate was 16.62%, down from 17.59% four weeks prior.

This declining trend suggests that investors are willing to accept lower returns for the security of government debt. The government aims to raise ₦5.8 trillion ($4.4 billion) through its Treasury bill program, including ₦4 trillion ($3.02 billion) via 364-day bills. For retail investors, T-bills represent a low-risk investment with a relatively high-yield, as they are sold at a discount and redeemed at face value upon maturity.

The difference between the purchase price and the redemption value constitutes the investor's return.