NTBs, FGN Bond Trading Surge 90%, 83% as Fixed-income Turnover Hits N8.9tn

Nume Ekeghe

Trading in Nigeria’s fixed-income market strengthened last week, with activity in Treasury Bills and federal government bonds surging by 90.3 per cent and 83.1 per cent respectively, pushing total market turnover above N8.9 trillion.

The market recorded N8.903 trillion in traded face value in the five trading days to September 28, up about 10 per cent from the N8.07 trillion recorded in the preceding week.

The increase was accompanied by a sharp rise in transactions, with the number of trades climbing to 2,812 from 2,097, representing a 34.1 per cent week-on-week increase. Participants also increased to 28 from 27.

Treasury Bills recorded the strongest growth among the major instruments, with traded value rising to N1.67 trillion from N877.76 billion in the previous week, representing a 90.3 per cent increase.

FGN bonds also recorded a significant jump, with turnover rising 83.1 per cent to N2.18 trillion, from about N1.19 trillion in the preceding week.

Combined trading in Treasury Bills and FGN bonds therefore rose to about N3.85 trillion, from N2.07 trillion previously, an increase of approximately 86 per cent.

The surge in activity in the two instruments came as trading in OMO bills, which had dominated the market in the previous week, moderated.

OMO bills recorded N5.03 trillion in traded value last week, down 16.1 per cent from N5.99 trillion in the preceding week.

Their share of total market turnover consequently fell to about 56.5 per cent, from more than 74 per cent previously.

Despite the decline, OMO bills remained the largest segment of the market, accounting for more than half of total turnover.

The increase in Treasury Bill and bond activity was also reflected in the number of trades.

FGN bonds accounted for 1,195 transactions, up from 687 in the previous week, while Treasury Bills recorded 580 trades, compared with 354 previously.

OMO bills, in contrast, recorded 1,020 trades, slightly lower than the 1,045 transactions recorded in the preceding week.

The figures therefore point to a significant broadening of activity across the fixed-income market, with investors conducting substantially more transactions in Treasury Bills and FGN bonds even as OMO activity moderated.

Sukuk also recorded stronger activity, with traded value rising to N26.26 billion from N8.35 billion in the previous week, representing an increase of more than 200 per cent, although from a relatively low base.

The shift in market composition came in a week that also saw the Monetary Policy Committee announce a cut in the benchmark interest rate.

However, the weekly figures alone do not establish a direct causal relationship between the MPC decision and the movement in individual securities. What they show clearly is that fixed-income activity strengthened during the week, with both total turnover and transaction volumes increasing.

The increase is particularly notable because it occurred despite the N966 billion decline in OMO turnover. The sharp rise in Treasury Bill and FGN bond activity more than offset the decline, lifting overall market turnover by about N836 billion week on week.

Analysts at Cordros securities states: “We expect the Treasury bills secondary market to retain a broadly bullish bias, supported by ample system liquidity. With the recent MPC rate cut reinforcing expectations of further downward repricing in short-term yields, investors are likely to seek to lock in prevailing elevated yields, particularly at the longer end of the T-bill curve.”

They added: “In the near term, we expect resilient local demand, improving offshore participation and the recent MPC rate cut to sustain the bullish tone. Over the medium term, however, sizeable government borrowing requirements should keep yields relatively elevated, while the longer-term yield trajectory will remain contingent on monetary policy conditions, foreign inflows, domestic liquidity and the FGN’s funding needs.”

Overall, the market recorded 2,812 trades involving 28 participants, with OMO bills accounting for N5.027 trillion, FGN bonds N2.179 trillion, Treasury Bills N1.671 trillion and Sukuk N26.26 billion.