FIC Markets’ Turnover Tumbles by 35% in April

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Bola Onadeko

By  Bamidele Famoofo

The Fixed Income and Currency (FIC) markets felt the impact of the ravaging COVID-19 pandemic in the month of April as investors reduced their business transactions on the FMDQ platform to the tune of about 35 percent as turnover dropped by N8.96trillion. Turnover in the review month stood at N16.7trillion compared to N25.66trillion recorded in the same period of March.

The FMDQ has attributed the general decrease in market activities to the COVID-19 pandemic and the associated exit by foreign portfolio investors, as well as the lockdown directive to curb the spread of the virus.

Meanwhile, the market recorded a year-on-year (YoY) increase of 2.02 per cent (N0.33trillion) from the turnover recorded in April 2019 (N16.37trillion) as Foreign Exchange (FX) and OMO bills remained the most actively traded products, jointly accounting for 72.10 per cent of the total FIC market turnover recorded in April 2020.

Total FX market turnover in April 2020 was $11.36billion (N4.38trillion), representing a MoM decrease of 60.73 percent ($17.57billion) from the turnover recorded in March 2020 ($28.92billion; N10.73trillion).

The FMDQ disclosed that the performance was driven mainly by the decline in economic activities and foreign capital inflows due to the COVID-19 pandemic, resulting in a decrease in FX supply, exacerbated by the temporary cessation of the periodic FX supply by the Central Bank of Nigeria (CBN) through its intervention sales in April 2020.

Analysis of FX market turnover by trade type indicated that all categories recorded a MoM decrease in April 2020. The member-client category accounted for 46.16 per cent ($8.11billion) of the total MoM decrease in FX turnover in April 2020, representing the highest decrease across all trade categories. Additionally, analysis of FX market turnover by product type indicated that FX spot turnover and FX derivatives turnover recorded MoM decreases of 79.76 per cent ($11.12billion) and 43.03 per cent ($6.45billion) respectively in April 2020.

In the OTC FX Futures market, the near month contract (NGUS APR 29 2020) with an outstanding notional amount of $1.52billion matured and was settled, whilst a new far month (60-month) contract, NGUS APR 30 2025 was introduced at a contract rate of $/N413.36. The total notional amount of open OTC FX Futures contracts as at April 30, 2020 stood at c.$15.00billion, representing a 3.23 per cent ($0.47billion) increase on the value of open contracts as at March 31, 2020 (c.$14.53billion), while the total notional amount of OTC FX Futures contracts traded to-date stood at $45.35billion as at April 30, 2020.

The CBN Official Spot US$/N exchange rate remained flat at $/N361.00, as at April 30, 2020 compared to the rate as at March 31, 2020, while the Nigerian Naira depreciated against the US Dollar at the Investors’ and Exporters’ (I&E) FX Window by $/N1.75 ($/N385.55 as at March 31, 2020) to close at $/N387.30 in April 2020. In the parallel market, the Nigerian Naira depreciated by $/N35.00 to close at $/N450.00 (March 31, 2020 – $/N415.00), increasing the spread between exchange rates in the I&E FX window and the parallel market by 112.90 percent (N33.25) to N62.70 from the spread recorded in March 2020 Fixed Income Market (T.bills , OMO bills and FGN Bonds). In the primary market, average discount rates on the 91-day, 182-day and 364-day T.bills declined further in April 2020 to 1.99 per cent, 2.81 per cent and 4.05 per cent from 2.40 per cent, 3.59 per cent and 4.95 per cent recorded in March 2020 respectively. Similarly, average marginal rates for the 5-year, 15 year and 30-year FGN Bonds decreased to 9.00 percent, 12.00 percent and 12.50 percent from 10.00 percent, 12.50 percent and 12.98 percent respectively recorded in March 2020, as FGN Bonds were oversubscribed by an average of 459.45 percent at the April 2020 FGN Bond auction.

As at April 30, 2020, total T.bills outstanding value remained flat at N2.65trillion; OMO bills outstanding recorded a MoM decrease of 4.79 per cent (N0.50trillion) to N9.94trillion, while the total FGN Bonds outstanding value also recorded a MoM increase of 1.80 percent (N0.17trillion) to N9.64trillion from N9.47trillion as at March 31, 2020. Liquidity in the secondary market for T.bills declined further in April 2020 as trading intensity fell to 0.01 from 0.08 in March 2020, with T.bills turnover decreasing MoM by 85 per cent (N0.17trillion) to N0.03trillion due to investors holding their T.bills investments to maturity. Trading intensity for OMO bills decreased marginally to 0.75 in April 2020 from 0.76 in March 2020, the first (1st) MoM decrease in 2020 due to the MoM decrease in OMO bills turnover by 5.54 percent (N0.45trn). Trading intensity for FGN Bonds also decreased MoM to 0.16 in April 2020 from 0.26, as FGN Bonds turnover also decreased MoM by 34.85 percent (N0.84trillion) to N1.57trillion, all as a result of lower activity due to the COVID-19 pandemic and its associated impact on financial markets globally. However, trading intensity for bills (T.bills and OMO bills combined) and FGN Bonds increased YoY to 1.20 and 0.16 respectively in April 2020, compared to 0.30 and 0.08 recorded in April 2019.

In April 2020, bills within the 6M – 12M maturity bucket remained the most traded across all tenors on the sovereign yield curve, accounting for 76.46 per cent of the total fixed income market turnover. FGN Bonds within the 20Y – 30Y maturity bucket remained the most traded debt capital market securities, accounting for 5.40 per cent of total fixed income market turnover. Weighted average yields on short-term and medium-term maturities increased by 256bps and 754bps respectively in April 2020, due to sell-offs by foreign portfolio investors seeking to exit their Nigerian investments, while the weighted average yields on long-term maturities decreased by 86bps in April 2020. Additionally, inflation adjusted yield remained negative across all short-term securities (1M – 3Y), while medium to long-term securities (i.e. 5Y – 20Y) excluding the 5Y and 15Y tenors, recorded positive inflation-adjusted yields in April 2020.

Total turnover in the money market segment decreased MoM and YoY by 26.88 per cent and 27.75 percent respectively to N3.02trillion in April 2020. The MoM decrease in Money Market turnover was driven by the MoM decrease in the Repurchase Agreements/Buy-Backs segment which declined by 24.04 per cent (N0.94trillion) to N2.97trillion in April 2020 from N3.91trillion recorded in March 2020. Also, turnover in unsecured placements/takings recorded a MoM decrease by 76.19 percent (N0.16trn) to N0.05trillion in April 2020, and YoY by 44.40 percent (N0.04trn) from N0.09trillion recorded in April 2019. Average O/N8 and OBB9 rates both decreased by 552bps and 531bps to close at an average of 5.74 per cent and 5.15 per cent respectively in April 2020 from 11.26 per cent and 10.46 per cent in March 2020.

According to FMDQ, total number of executed trades reported on the Bloomberg E-Bond Trading System in April 2020 was 4,474, representing a MoM decrease of 52.45 per cent (4,935) against the number of executed trades recorded in March 2020 (9,409), driven by the decrease recorded across all executed trade types on bills and FGN Bonds. Further, this represented a YoY decrease of 61.32 per cent (7,092) against the number of executed trades recorded in April 2019 (11,566).