Investors Inject N23trn in ‘FIC’ Markets in January

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BY Bamidele Famoofo

Turnover in the Fixed Income and Currency (FIC) markets for the month ended January 31, 2020 was N23.19trillion, representing a month-on-month (MoM) increase of about 41 percent (N6.74trillion) from the turnover recorded in December 2019 (N16.45trillion) and a year-on-year (YoY) increase of about 54 per cent (N8.11trillion) from the turnover recorded in January 2019 (N15.08trillion).

Foreign exchange (FX) and OMO3 bills remained the most actively traded products, jointly accounting for 67.02 per cent of the total FIC market turnover recorded in January 2020.

Total FX market turnover in January 2020 was $24.35billion (N8.85trillion), representing a 31.71 per cent ($5.86billion) MoM increase from the turnover recorded in December 2019.

Analysis of FX market turnover by trade type indicated MoM increases across all categories, with Member-Client trades recording the highest MoM increase at 36.15 per cent ($3.87billion) Additionally, analysis by product type indicated that the MoM increase in FX turnover was driven more by the 40.47 per cent ($3.42billion) increase in FX Derivatives turnover, which accounted for 58.35 per cent of the MoM increase in total FX market turnover compared to the 24.33 per cent ($2.44billion) increase in FX Spot turnover .

In the OTC FX Futures Market, the near month OTC FX Futures contract (NGUS JAN 29 2020) with a total open contract value of $1.57billion matured and was settled, and a new far month contract, NGUS FEB 24 2021 was introduced at an initial contract rate of $/N365.71. The total value of open OTC FX Futures contracts as at January 31, 2020 stood at c.$9.77billion representing a 10bps (c.$0.01billion) increase on the value of open contracts as at December 31, 2019 (c.$9.67billion), while the total value of contracts settled since inception to date stands at c.$25.53billion.

The CBILLION Official Spot US$/N exchange rate closed at $/N307.00 in January 2020, while, the Nigerian Naira appreciated against the US Dollar in the parallel market by $/N2.00 to close at $/N360.00 (December 31, 2019 – $/N362.00). Similarly, the Naira appreciated against the US Dollar at the Investors’ and Exporters’ (I&E) FX Window by $/N0.54 ($/N364.51 as at December 31, 2019) to close at $/N363.97 in January 2020 Fixed Income Market (T.bills, OMO bills and FGN6 Bonds).

At the end of January 2020, the outstanding value of T.bills increased MoM by 2.71 percent (N0.07trillion) to N2.65trillion; similarly, the outstanding value of FGN Bonds increased MoM by 4.35 percent (N0.41trillion) to N9.84trillion. However, the outstanding value of OMO bills decreased by 6.23 percent (N0.81trillion) MoM to close at N12.20trillion in January 2020.

Trading intensity for T.bills decreased further to 0.17 in January 2020 from 0.19 recorded in December 2019, while the trading intensity for OMO bills increased to 0.53 from 0.27 over the same period. The increase in the trading intensity of OMO bills was driven jointly by the 78.40 per cent (N2.94trillion) MoM increase in OMO bills turnover in January 2020, as well as the decrease in OMO bills outstanding. However, the trading intensity for FGN Bonds increased marginally to 0.31 in January 2020 from 0.30 recorded in December 2019 due to the 5.43 per cent (N0.15trillion) MoM increase in FGN Bonds turnover. Year-to-date (YTD) trading intensity for bills (combined for T.bills and OMO bills) and FGN Bonds stood at 0.47 and 0.31 respectively compared to 0.46 and 0.08 recorded in the corresponding period in 2019.

In January 2020, T.bills and OMO bills within the 6M – 12M maturity bucket were the most traded across all tenors on the sovereign yield curve, accounting for 44.08 percent of the total Fixed Income market turnover. FGN Bonds within the 20 year – 30year maturity bracket were the most traded among the medium to long-term securities (i.e. 5Y – 30Y), accounting for 13.13 per cent of the total Fixed Income market turnover.

Weighted average yields on short and long-term fixed income maturities decreased by 3.02 per cent and 0.87 per cent respectively in January 2020. However, weighted average yields on medium-term fixed income maturities increased by 8.95 per cent in January 2020, due to the increase in weight for the 7Y – 10Y maturity bucket. In addition, the average stop rates for T.bills at the primary market declined in January 2020 from December 2019 across all tenors. The minimum tenor for new OMO bills issued in January 2020 was 361-day, with average stop rates declining by 8bps to 13.20 per cent in January 2020 from 13.28 per cent recorded in December 2019.

Total turnover in the Money Market increased MoM by 59.85 percent (N1.61trillion) to N4.29trillion in January 2020; this was driven by the Repurchase Agreements/Buy-Backs segment which increased MoM by 60.49 per cent (N1.56trillion) to N4.14trillion in January 2020 from N2.58trillion in December 2019, representing a YoY increase of 68.96 per cent (N1.69trillion) from the turnover recorded in January 2019 (N2.45trillion). Similarly, turnover in Unsecured Placements/Takings increased to N0.15trillion in January 2020, representing 44.07 per cent (N0.05trillion) and 201.85 per cent (N0.10trillion) MoM and YoY increases respectively. The average O/N8 and OBB9 rates increased by 313bps and 299bps respectively, to close at an average of 6.92 percent and 6.08 per cent in January 2020 from 3.79 per cent and 3.09 per cent in December 2019, indicating a decrease in liquidity in the inter-bank market.

Total number of executed trades reported on the Bloomberg E-Bond Trading System in January 2020 was 11,386, representing a 12.78 percent (1,669) MoM decrease against the number of executed trades recorded in December 2019 (13,055), driven mainly by the 19.81 percent (2,078) MoM decrease in bills’ (T.bills and OMO bills) trades. However, FGN Bonds’ trades recorded a 15.96 percent (409) MoM increase in the number of executed trades in January 2020 (2,972).

2019 Performance Review

A review of the performance of investment activities in the 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 of the largest economy in Africa 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 percent 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.