Nigeria’s Fixed Income Market Records N103 Trillion in 9 Months

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Bamidele Famoofo reviews investment in the country’s fixed income market in the last nine months

The value of investments in the Nigerian fixed income market in the first nine months of 2017 is put at N102.88 trillion. That value will finance the country’s 2017 budget 14 times. Also, investments in the market have consistently outperformed the capital market, where long term instruments are traded.

Data made available by the FMDQ OTC Securities Exchange showed that the Treasury Bills segment of the market remained the most patronised by investors. This is followed by the Foreign Exchange segment.

Investment in Treasury Bills between January and September 2017 stood at N45.8 trillion, which represents 44.52 per cent of total turnover the market recorded in the review period. Foreign Exchange accounted for 24.21 per cent of gross turnover in the OTC Securities Market as at the last trading day in September, which amounted to N24.91 trillion, while Repos/buy-backs and Unsecured Placement/Takings recorded transactions worth N24.7 trillion, representing 24.0 percent. Investment in the Federal Government Bonds enjoyed least patronage by investors at N7.42 trillion, representing 7.2 percent of the market’s gross turnover as at the end of third quarter period ending September 30, 2017.

January Records Low Start-up
Turnover of transactions carried out in the Fixed Income and Currency markets for the month of January 2017 amounted to N10.65trillion, implying a 13.09% (N1.65trn) reduction from the value recorded in December 2016 and a 42.91% (N3.19trn) increase YoY1.

Treasury bills transactions, which continued to dominate, accounted for 48.00% compared to 45.20% of the total turnover recorded in December 2016, while FGN2 bonds recorded 11.56% (December 2016 – 10.62%).
Activities in the Money Market (Repos/buy-backs and Unsecured Placement/Takings) accounted for 25.34% as against 22.76% in December 2016, while the Foreign Exchange market for the first month in year 2017 accounted for 15.10% compared to 21.39% of the total turnover in December 2016.

Transactions in the foreign exchange market settled at $5.20bn (about N1.6 trillion) in January, a decrease of 38.09% ($3.21bn) when compared to the value recorded in December 2016 ($8.41bn).
The seventh Naira-settled OTC FX Futures contract NGUS JAN 25 2017, with total open contracts worth $274.38million, matured and settled within the reporting month.

The CBN revised its rates upwards on all open OTC FX Futures contracts, whilst a new 12-month contract – NGUS JAN 31 2018 – was introduced at $/N281.50 while Member-Member trades stood at $0.64bn in the month of January, a decrease of 13.69% ($0.10bn) compared with trades recorded in December 2016 and a decrease of 47.39% ($0.58bn) Year-on- Year, while Member-Client trades decreased by 36.08% ($2.24bn) from the previous month and decreased by 48.45% ($3.73bn) Year on Year .

Member-CBN trades stood at $0.59bn in January (December 2016 – $1.45bn), representing a decline of 59.13% ($0.86bn) MoM4 and a decline of 61.37% ($0.94bn) YoY
In January 2017, the Naira remained relatively flat to close at $/N305.00 in the inter-bank market and depreciated by 2.68% to close at $/N485.00 in the parallel market.

Turnover in the Fixed Income market in January, 2017, settled at N6.34trn, 7.31% (N0.50trn) below the previous month’s value, with transactions in the T.bills market accounting for 80.60% of the Fixed Income market turnover.
Outstanding T.bills at the end of the month amounted to N8.32trn (December 2016 – N7.53trn) whilst FGN bonds outstanding value increased by 3.23% (N0.215trn) Month-on-Month to close at N6.88trn in the period under review.
Trading intensity in the Fixed Income market settled at 0.64 and 0.18 for T.bills and FGN bonds respectively, with maturities between 1 – 3 months being the most actively traded (N1.51trn).

Short-term yields on the FGN bond yield curve declined an average of 1.59%, whilst yields in the medium- and long-term spectrum gained by averages of 0.31% and 0.61% respectively.
The spread between the 10-year and 3-month benchmark closed at 2.41% points at the end of the month under review, compared with 2.30% points recorded in December 2016.

Activities in the Secured Money Market (Repos/Buy-Backs) settled at N2.66trn, 4.54% (N0.12trn) above the value recorded in December 2016. On a YoY basis, Repos/Buy-Backs turnover recorded an increase of 48.00% (N0.87trn).
Unsecured Placements/Takings reduced by 83.65% (N0.21trn) MoM to close the month at a turnover of N0.04trn; a decline of 83.20% (N0.19trn) YoY.

The number of executed trades captured on the E-Bond trading platform for the month of January amounted to 20,220 as against 20,601 recorded in the December 2016.
Executed trades on T.bills and FGN bonds recorded an increase of 13.02% and 34.46% respectively at the end of the month.

First quarter performance review
Investments picked up at the OTC Securities Market in February, after the lull experienced in the first month of the year, when investors awaited the passage of the 2017 Budget.
Transaction turnover in the fixed income and currency markets for the month of February amounted to N12.15trn; a 12.01% (N1.30 trn) increase from the value recorded in January and an 80.57% (N5.42 trn) increase YoY. Breakdown of transactions showed that the treasury bills segment continues to dominate, accounting for 52.20% (48.51% in January) while FGN2 bonds recorded 9.01% (11.60% in January)

Activities in the Money Market (Repos/buy-backs & Unsecured Placement/Takings) accounted for 22.19% lower than 27.03% in January, while the Foreign Exchange (FX) market, for February, accounted for 16.47% compared to 14.90% of the total turnover in January. At the close of the first quarter, in March 2017, total turnover increased to N13.42 trillion; a 10.50% (N1.27trn) increase from the value recorded in February and a 52.16% (N5.13trn) increase YoY.

Huge Drop in Turnover in Q2
The fixed income market recorded a huge drop in turnover in second quarter as the relevant arms of government delayed the signing of the 2017 Budget of ‘Recovery and Growth’. Investments in the market dropped by 34.68% ((N4.67trn) to N8.79trn; decrease from the value recorded in March and a 7.91% (N0.76trn) decrease YoY.
Transaction turnover in the month of May amounted to N9.49trn; a 7.32% (N6.95trn) increase from the value recorded in April and a 18.90% (N2.21trn) decrease YoY.

The treasury bills segment continued to dominate, accounting for 40.73% (40.24% in April) while FGN2 bonds recorded 5.23% (7.19% in April) of total turnover in May.

Activities in the Foreign Exchange (FX) market accounted for 24.88% (27.71% in April) while Money Market (Repurchase Agreements (Repos)/Buy-Backs & Unsecured Placements/Takings) accounted for 29.13% (22.85% in April) of total turnover for the reporting period.

After the much awaited Budget for fiscal year 2017 was finally signed by the Vice President of Nigeria, Professor Yemi Osinbajo, in June, 2017, transaction value moved up by 32.98 % or N3.13trillion to hit N12.62 trillion in June. It turnover value in June represents an increase of 34.65% or N3.24trillion Year-on-Year for investors at the short-term instruments market.

Turnover Fluctuation in Q3, Despite Signs of Recovery
While turnover value in the fixed income market showed some signs of recovery from the noticeable drop recorded in second quarter, it failed to match the closing record of N13.42 trillion achieved in March. Turnover value in September closed at N11.34 trillion lower than the N11.53 trillion opening figure in July and a 12.05% (N1.55trn) decrease from the value recorded in August, and a 1.79% (N0.22trn) increase YoY.
The treasury bills segment accounted for 38.45% in September (41.01% in August) while FGN2 bonds recorded 9.08% (4.21% in August) of total turnover in September.

Nevertheless, activities in the foreign exchange market accounted for 36.49% of turnover value in September up from 31.12% recorded in August while Money Market (Repurchase Agreements [Repos]/Buy-Backs & Unsecured Placements/Takings) accounted for 15.92% down from 23.42% of total turnover recorded in August.