Bamidele Famoofo
nvestors at the Fixed Income and Currency markets of the FMDQ platform reduced their commitment to the markets by N2.57trillion in October, representing a decrease of 13.39 percent compared to N19.2trillion they invested in the markets in September.
According to a monthly report on the performance of the markets published by FMDQ, investors showed preference for short-tenor instruments to quickly recover their investments from the markets in the review period.
Turnover in the FIC markets in October stood at N16.63trillion, recording a drop of 13.39 per cent month on month. But turnover on year-on-year basis grew by 24.57 per cent or N3.28trillion in comparison to N13.35trillion turnover recorded in October 2018.
“Turnover in the Fixed Income and Currency (FIC) markets for the month ended October 31, 2019 was N16.63trillion, representing a MoM1 decrease of 13.39per cent (N2.57trillion) on the turnover recorded in September 2019 (N19.20trillion) despite representing a YoY2 increase of 24.57per cent (N3.28trillion) in comparison to the turnover recorded in October 2018 (N13.35trillion),’’ a statement from FMDQ disclosed.
Treasury bills (T.bills) and foreign exchange (FX) product segments continued as the major drivers of turnover in the review period, jointly accounting for 71.41 per cent of the total FIC market turnover recorded in October 2019, but representing a month-onmonth decrease of 701bps compared to their joint contribution as recorded in September 2019 (78.42per cent).
Total foreign exchange market turnover in October 2019 was $13.97billion (N5.06trillion), representing a 22.90 per cent ($4.15billion) month-on-month decrease from the turnover recorded in September 2019. Analysis of FX market turnover by trade type indicated monthon-month decreases across all trade type categories, with member-CBN trades recording the highest percentage month-on-month decrease at 30.85 per cent ($1.13billion), while member-client trades recorded the highest month on month decrease in dollar (nominal) terms, at $2.81billion (24.97per cent). Additionally, analysis by product type indicates that the month-on-month decrease in FX turnover was mainly driven by the 21.80 per cent ($2.46billion) decrease in FX Spot turnover. Similarly, FX Derivatives turnover recorded a month on month decrease of 24.73 per cent ($1.69billion) driven by the 38.02 per cent ($1.14billion) month-on-month decrease in FX Swaps turnover.
In October 2019, the Naira-settled OTC FX Futures Contract (NGUS OCT 30 2019) with a total open contract value of $1.19billion matured and was settled, and a new contract, NGUS NOV 25 2020 for $1.00billion at $/N366.22 was introduced. This brings the total value of open OTC FX Futures Contracts to c. $9.74billion, while the total value of contracts settled since inception to date stands at c. $20.77billion.
In October 2019, the CBN Official Spot rate for US$/N remained constant at $/N307.00. Similarly, the parallel market rate remained constant at $/N360.00, while the Naira depreciated against the US Dollar at the Investors’ and Exporters’ (“I&E”) FX Window by $/ N0.43 to close at $/N362.66 in October 2019 ($/N362.23 in September 2019) Fixed Income Market (T.bills and FGN4bonds).
In October 2019, total OMO5 bills outstanding was N14.87trillion; representing a month-on-month decrease of 2.30 percent (N0.35trillion), whilst average T.bills outstanding remained constant at N2.58trillion.
However, average FGN bonds outstanding increased month on month by 0.79 percent (N0.07trn) to close at N8.90trillion in October 2019 from N8.83trillion reported in September 2019.
Trading intensity for T.bills decreased to 0.39 in October 2019 from 0.48 recorded in September 2019, however, trading intensity for FGN bonds remained constant at 0.11 in October 2019. YTD6 Trading intensity for T.bills and FGN bonds stood at 4.47 and 1.33 respectively compared to 4.39 and 1.29 recorded in the corresponding period in 2018.
In October 2019, T.bills within the 6 – 12months maturity bracket were the most actively traded among the short-term securities (i.e. 1M – 2Y) accounting for 41.23 percent of the total fixed income market turnover, while FGN bonds within the 7 – 10 years maturity bracket were the most actively traded among the medium to long-term securities (i.e. 2Y – 30Y), accounting for 4.74 percent of the total Fixed Incomemarketturnover. Weightedaverageyieldsontheshort, medium and long-term fixed income maturities decreased by 0.06 percent, 0.16 percent and 0.36 percent respectively in October 2019. This can be attributed to the sustained interest in fixed income securities by foreign portfolio investors and local institutional investors due to favourable real returns compared to other asset classes. However, inflation-adjusted yield remained positive across all tenors in the period under review.
Money Market (Repurchase Agreements /Buy-Backs and Unsecured Placements/Takings). Total turnover in the Money Market increased month on month by 18.00 percent (N0.57trn) to N3.74trillion in October 2019, driven majorly by the Repurchase Agreements/ Buy-Backs segment which recorded a month on month increase of 15.09 percent (N0.44trn) in turnover to N3.32trillion in October 2019 from N2.89trillion in September 2019.
Turnover in Unsecured Placements/Takings in October 2019 was N0.41trillion, representing a 48.19 percent (N0.13trn) month on month increase from the N0.28trillion recorded in September 2019, and a year on year increase of 516.02 percent (N0.35trn) from the turnover recorded in October 2018 (N0.07trn). This can be attributed to the increased liquidity in the inter-bank market.
Improved liquidity in the financial system is evidenced by the decrease of the average O/N7 and OBB8 rates by 490bps and 460bps respectively to an average of 7.01 percent and 6.23 percent in October 2019 from 11.91 percent and 10.83 percent in September 2019 Market Surveillance.
Total number of executed trades reported on the Bloomberg E-Bond Trading System in October 2019 was 9,731, representing a 26.43 percent (3,495) month on month decrease in the number of executed trades in September 2019 (13,226), driven by the 28.20 percent (3,394) and 8.49 percent (101) month on month decreases in T.bills and FGN bonds’ trades respectively.