Fixed Income & Currency Turnover Drops 19.81% in October

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• Market records N1.17trillion year-on-year increase

BY Bamidele Famoofo

Investment in the Fixed Income and Currency (FIC) market recorded a downturn to the tune of 19.81 per cent in October as turnover dropped by N3.30 trillion to N13.35 trillion from N16.65 trillion of the previous month.

However, year-on-year (YoY), turnover increased by 9.60 per cent in the review month as investors, who trade on short- term interest yielding instruments in the market increased their commitment in the market by N1.17trillion in one year.

“Turnover in the Fixed Income and Currency (FIC) market for the month ended October 31, 2018 was N13.35trillion, representing a 19.81 percent (N3.30) month on month decrease on the turnover of N16.65trillion recorded in September, and a 9.60 percent (N1.17trillion) YoY increase”, a statement from FMDQ OTC disclosed.

Treasury bills (T. bills) and Foreign Exchange (FX) remained the major drivers of turnover in the FIC market, jointly accounting for 73.98 percent of turnover in October, despite being lower by 5.02 percentage  points  (ppts) from their  level  of contribution in September (79.00 per cent). 

Total foreign exchange market turnover in October was N4.55trillion ($12.52billion), representing 34.08 per cent of FIC market turnover and a 31.62 per cent ($5.79billion) month-on-month decline from the turnover recorded in September ($18.31billion).

Turnover at the Investors & Exporters (I&E) FX Window recorded a 37.94 per cent  ($2.9billion)  MoM  decrease  to  close  at $3.91billion  from  the $6.30billion recorded  in September. Year to Date (YTD) turnover at the I&E FX Window closed at $49.39billion as at October 31, 2018.  

The decrease in FX turnover in October was largely attributed to the decline in member-clients and member- CBN  trades (32.82 per cent and 40.71 per cent respectively) against the marginal increase in Inter- member trades (0.22 per cent).

Analysis of foreign exchange (FX) turnover by product type showed that FX Spot was the main driver of the MoM decline with a drop of 34.67 per cent ($4.62billion).  However, FX  Derivatives also recorded  a MoM  decline  of 23.45 percent  ($1.17billion),  driven mainly  by  a  49.14 percent  decline  in  FX  Futures turnover.

“In October, the 28th Naira-settled OTC FX Futures contract (NGUS OCT 31 , 2018) with total open contract of $371.49 mm, matured and was settled on FMDQ, whilst a new 12-month Futures contract (NGUS OCT 30, 2019) with a notional principal of $1.00 billion and price of $/N365.74 was  listed on the OTC Exchange”, disclosed.

In October, the $/N rate at the I&E FX Window appreciated by 38 kobo to close the month at $/N363.54 (from $/N363.92 recorded in September), while the CBN official spot rate depreciated by $/N0.25 to close at $/N306.60 (from $/N306.35 recorded in September).

 The $/N rate at the parallel market rate also depreciated between September and October by N1.00 to close at $/N362.00, closing lower than the rate at the I&E FX Window for the fourth consecutive month Fixed Income Market (T.bills and FGN Bonds).

Total T.bills and FGN Bonds outstanding recorded MoM increases of N0.21trillion and N0.10 trillion to close at N12.87trillion and N8.21trillion respectively as at October 31, 2018 mainly due to net issuances. Also, the domestic debt mix by tenor as at October was 39:61 (long vs.  short term) as  against  the  planned  ratio  of 75:25 outlined  in  the  Debt  Management  Strategy (2016 -2019).

Monthly Trading Intensity in the T.bills and FGN Bonds markets decreased from 0.52 and 0.17 in September to 0.40 and 0.90 in October respectively. YTD trading intensity in both markets stood at 4.39 and 1.29 respectively compared to 5.70 and 1.17 as at the same period in 2017. T.bills within the 6-12 months maturity bracket remained the most actively traded, accounting for 24.82 per cent of the total FI market turnover in October

Weighted  average  yields  on short and  medium -term  maturities  on  the  sovereign  yield curve  rose by 0.64 ppts and 0.15ppts respectively in October, whilst the weighted average yields for long-term maturities decreased by 0.27ppts.

Yield spread between the 3-month treasury  bills and the 10-year FGN Bond decreased by 171 basis points (bps) to close at a 0.57 per cent in October (2.28 per cent in September) Money Market (Repos/Buy-Backs and Unsecured Placements/Takings). Turnover recorded in the Repos/Buy-Backs segment of the Money Market was N2.64trillion in October, representing a 24.70 per cent (N0.52trillion) MoM increase from N2.12 trillion recorded in September, and a 22.85 per cent (N0.49trillion) YoY increase from the turnover recorded in October 2017

Similarly, Unsecured Placements/Takings closed the month with a turnover of N66.90billion, representing an 81.02 per cent (N 29.94billion) MoM increase from N36.96 billion recorded in September, and a YoY decline of 66.21 percent (N0.13trillion).

Average O/N NIBOR  increased by 669ppts to close at 15.30 percent in October from 8.61 per cent reported for September, indicative of the tight liquidity experienced in the inter-bank market surveillance.

Total number of executed trades reported on the E-Bond Trading System in October was 10,715 representing  a 41.56 per cent (7,619) MoM decline in  the  number  of  trades executed, driven  by  a  MoM decrease in T.  bills and FGN Bonds trades by 6,640 (41.12 per cent) and  979 (44.74 per cent) respectively.