Investors in the Fixed Income and Currency markets on the platform of FMDQ invested about N216.24trillion in short-term, interest-yielding instruments, mainly foreign exchange, treasury bills and repurchase agreements/buy backs in 11 months in 2019. Trading in treasury bills, accounted for the lion’s share of turnover in the review period with N81.73billion. Bamidele Famoofo reports
Performance at a glance
A review of the performance of investment activities in the Fixed Income and Currency (FIC) markets for a period of 11 months in the financial year ended 2019 for FMDQ, showed that investors splashed about N216.24trillion ($597.76billion) on the various investment instruments on offer on the FMDQ platform.
The gross turnover recorded by the FIC markets in 11 months of 2019 will finance the 2020 budget 20 times. It is also 15 times the size of the nation’s external reserves as at 8th of January, 2020.
The total investment in the markets in the review period will adequately fund Nigeria’s huge infrastructure deficit estimated at $31billion per annum by McKinsey, for about 20 years.
Dealing members showed preference for foreign exchange trading which accounted for about 41 per cent of total turnover in the FIC markets in the review period. T-Bills trading attracted N81.73trillion, followed by FX with N48.32trillion; which accounted for 22.4 per cent of total market turnover in 11 months.
Apart from FX and T-Bills markets, investors splashed N41.71trillion on repurchase agreements/buy backs, making it the third most treasured instruments in the review period. Turnover in this section of the market accounted for 19.3 per cent of the markets gross turnover. Foreign exchange derivatives and the federal government bonds accounted for 13.2 per cent and 6.4 per cent of total markets turnover respectively. They both attracted N28.43 trillion and N13.86trillion respectively from investors in the review period.
A review of performance of turnover month-on-month (MoM) showed that turnover in the T-bills market between January and April, stood at N29.9trillion while trading in FX was N20.06trillion. About N15.1trillion was spent on repurchase agreement/buy back instruments while FX derivatives and FGN Bonds attracted N10.19trillion and N3.97trillion respectively. All together, turnover was N79.61trillion in the first four months of trading in 2019. Average turnover between January and April stood at N19.90trillion.
Market turnover in the FIC markets in the month of May increased to N20.49trillion ($56.8billion) with T-bills taking the lead with N7.4billion. FX attracted N4.3trillion which was below N4.63trillion spent on repurchase agreement/buy back, which recorded N4.63trillion in the month. FX derivatives and FGN Bonds garnered N2.61trillion and N1.46trillion respectively in the month of May. In the month of June, Treasury Bills attracted N7.47trillion from investors, higher than the turnover of May by 1.1 per cent. Meanwhile, FX was less attractive to buyers in June, as turnover dropped by 24 per cent compared to the turnover in May, as investment in T-bills stood at N3.14trillion. FX derivatives and repurchase agreement/buy back recorded N2.92trillion and N3.64trillion respectively in June. Turnover in third quarter (July-Sept) stood at N58.78trillion, the peak month being August. The N23.21trillion turnover in August represented about 39.5 per cent of the third quarter turnover. Turnover dropped in September, standing at N19.21trillion. Investment in the FX space dropped in July, to N3.08trillion as against N3.14trillion in June. In August turnover shot up to N5.57trillion before dropping by 22 per cent to N4.35trillion. Patronage in T- bills was highest in August at N9.09trillion but dropped by 6.6 per cent in September at N8.49trillion.
Meanwhile, the two months captured in the last quarter of the year (October and November) recorded N38.24trillion. Turnover in November was N21.61trillion, representing 56.5 percent. Patronage dropped across board in October with FX recording N3.45trillion down from N4.35trillion in September. T-bills, N6.81trillion; FX derivatives, N1.62trillion; FGN Bonds and repurchase agreement/buy back recorded N0.99trillion and N3.32trillion respectively in October. Breakdown of investment in November showed at T-bills accounted for 29 per cent of total turnover while FX did 21 per cent at N6.28trillion and N4.54trillion respectively. Deal in repurchase agreement/buy back stood at N5.42trillion, accounting for 25 per cent of turnover. FX derivatives and FGN Bonds recorded N2.94trillion and N2.33trillion respectively.
Turnover in the FIC markets for the month ended November 30, 2019 was N21.61trillion, representing a MoM increase of 29.95 percent (N4.98trillion) on the turnover recorded in October 2019 (N16.63trillion) and a YoY increase of 61.87 percent (N8.26trillion) in comparison to the turnover recorded in November 2018 (N13.35trillion).
FX, repurchase agreements/buy-backs and OMO bills were the most traded products jointly accounting for 78.44 percent of the total FIC market turnover recorded in November 2019. Total FX market turnover in November 2019 was $20.61billion (N7.47trillion), representing a 47.54 percent ($6.64billion) MoM increase from the turnover recorded in October 2019 driven jointly by the increase in turnover of Member-Client FX Spot and Member-CBN FX Derivatives transactions.
Analysis of FX market turnover by trade type indicated MoM increases across all categories, with member-CBN trades recording the highest percentage MoM increase at 116.96 percent ($2.95bn), while member-Client trades recorded the highest MoM increase in dollar (nominal) terms, at $3.65billion (43.17per cent).
Additionally, analysis by product type indicated that the MoM increase in FX turnover was mainly driven by the 69.66 percent ($3.57billion) increase in FX Derivatives turnover, while FX Spot turnover recorded a MoM increase of 34.70 percent ($3.07billion), accounting for 53.77 percent and 46.23 per cent of the MoM increase in total FX market turnover respectively.
In November 2019, the Naira-settled OTC FX Futures Contract (NGUS NOV 27 2019) with a total open contract value of $1.47billion matured and was settled, and a new contract, NGUS DEC 30 2020 for $1.00billion at $/N366.87 was introduced. This brings the total value of open OTC FX Futures Contracts to c.$9.74bn, while the total value of contracts settled from inception to date stands at c.$31.98bn. In November 2019, the CBN Official Spot rate for US$/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 $/N0.15 to close at $/N362.81 in November 2019 ($/N362.66 in October 2019) Fixed Income Market (T.bills, OMO bills and FGN bonds).
In November 2019, the average outstanding value of OMO bills decreased by 1.21 per cent (N0.18trillion) MoM to N14.69trillion, whilst the average outstanding value of T.bills remained flat at N2.58trillion. Conversely, the average outstanding value of FGN bonds increased MoM by 0.45 per cent (N0.04trn) to close at N8.94trillion in November 2019.
Trading intensity for T.bills and OMO bills decreased to 0.36 in November 2019 from 0.39 recorded in October 2019, conversely, trading intensity for FGN bonds increased to 0.26 in November 2019 from 0.11 recorded in October 2019. YTD trading intensity for T.bills & OMO bills and FGN bonds stood at 4.83 and 1.60 respectively compared to 5.00 and 1.40 recorded in the corresponding period in 2018. In November 2019, T.bills and OMO bills within the 6M – 12M maturity bracket were the most actively traded among the short-term securities (i.e. 1M – 5Y) accounting for 29.85per cent of the total Fixed Income market turnover, while FGN bonds within the 7Y – 10Y maturity bracket were the most actively traded among the medium to long-term securities (i.e. 5Y – 30Y), accounting for 7.67per cent of the total Fixed Income market turnover.
Total turnover in the money market increased MoM by 47.65 percent (N1.78trn) to N5.52trn in November 2019, driven majorly by the Repurchase Agreements/Buy-Backs segment which recorded a MoM increase of 62.94 percent (N2.09trn) in turnover to N5.42trn in November 2019 from N3.32trn in October 2019.
Turnover in Unsecured Placements/Takings in November 2019 was N0.10trillion, representing a 75.64 per cent (N0.31trillion) MoM decrease from the N0.41trillion recorded in October 2019, and a YoY increase of 59.14per cent (N0.04trillion) from the turnover recorded in November 2018 (N0.06trillion).