FMDQ Turnover Sheds N4.5tn in August



Investments at the Fixed Income and Currency (FIC) markets suffered a setback in the month of August as investors reduced their stakes to the tune of N4.46trillion, representing a 23.8 percent decline compared to the turnover recorded in July. Bamidele Famoofo reports

According to FMDQ, the platform, where investors trade on short-term yield instruments, turnover in July was N18.72trillion compared to N14.26trillion recorded in August.

There has been pressure on the market since the beginning on this year as turnover dropped by 38.56 per cent or N8.95trillion, on year on year basis compared to a turnover of N23.21trillion recorded in August 2019.

Year to date, turnover in the market has recorded a decline to the tune of 5.38 per cent from N158.79trillion YTD recorded as at August 31, 2019 compared to N150.25trillion as at August 31, 2020.

A review of transactions in the month of August showed that the OMO4bills and foreign exchange (FX) transactions were the highest contributors to the FIC markets in August2020, jointly accounting for 53.58 percent of the total FIC market turnover.

Total foreign exchange market turnover in August2020 was $9.76billionn (N3.76trillion), representing a month on month (MoM) decrease of 9.80 percent ($1.06billion) from the turnover recorded in July2020 $10.82billion (N4.20trillion).

Analysis of FX market turnover indicates that FX Derivatives decreased MoM by 7.96 percent ($0.61billion) whilst FX Spot turnover decreased by 14.24 percent ($0.45billion) in August2020, as the current liquidity challenges in the FX market persisted. In the OTC FX Futures market, the near month contract5 (NGUS AUG 262020) with a total outstanding notional value of $1.58billion matured and was settled, whilst a new long-term (60-month) contract, NGUS AUG 272025 was introduced at a rate of $/N590.10.

According to FMDQ, “total notional value (“NV”)of open OTC FX Futures contracts as at August 31, 2020 stood at $12.34billion, representing a 2.76 percent ($0.35billion) decrease on the NV of open contracts as at July29, 2020 (c.$12.69billion), and continuing the downward trend in the NV of open contracts since May2020.”

However, the total NV of OTC FX Futures contracts traded since inception crossed the $50.00billion mark, reaching $50.09billion as at August 31, 2020. The Central Bank of Nigeria (CBILLION) Official Spot US$/N exchange rate closed at an average of $/N380.43 in August2020, representing 0.86 percent ($/N3.24) decrease in exchange rate from $/N377.19recorded in July2020.

At the Investors’ and Exporters’ (I&E) FX Window, the Naira appreciated against the US Dollar, gaining 0.31 percent ($/N1.22) to close at an average of $/N386.26 in August2020 from $/N387.48 recorded in July2020. Conversely, in the parallel market, the Naira depreciated against the US Dollarlosing1.63 percent ($/N7.62) to close at an average of $/N475.29 in August 2020 from $/N467.67 recorded in July 2020.

In the primary market, average discount rates for the 91-day, 182-day and 364-dayT.billsdecreased MoM by 23 basis points (bps), 35bps and 18bps to 1.20 percent, 1.39 percent and 3.20 percent respectively in August 2020. Similarly, the discount rates for OMO bills decreased MoM by an average of 6bpstoclose at a range of 4.90-8.94 percent in August2020.

In the primary market for sovereign bonds, the marginal rates for the 10-yearFGN Bond issued increased by 70bpsto 6.70per centin August 2020 whilst those of the 15-year, 25-year and 30-year FGN Bonds decreased by15bps, 5bps and 5bpsto 9.35 percent, 9.75 percent and 9.90 percent respectively in August2020, compared to the marginal rates for issuances in July2020.

The total value of T.bills and OMO bills outstanding as at August 31, 2020 decreased MoM by 2.13 percent (N0.06trillion)and 4.93 percent (N0.44trillion) to N2.76trillion and N8.49trillion respectively, whilst the total value of FGN Bonds outstanding as at August 31, 2020 increased MoM by 1.16 percent (N0.12trillion) to N10.43trillion, indicating a N0.08trillion MoM increase in local public debt to N13.56trillion as at August 31, 2020.

Turnover for T.bills increased by 36.25 percent (N0.29trillion) to N1.09trillion, resulting in an increase in trading intensity to 0.40 in August 2020 from 0.29 in July2020. Conversely, OMO bills turnover decreased MoM by 23.92 percent (N1.22trillion) to N3.88trillion in August2020, resulting in the decrease in trading intensity to 0.44(0.57in July2020), while FGN Bonds turnover decreased MoM by 3.70 percent (N0.09trillion) to N2.34trillion, resulting in a marginal decrease in its trading intensity to 0.23 (0.24 in July 2020). In August2020, OMO bills within the 6 –12 months maturity bucket was the most traded across all tenors in the fixed income market, accounting for 26.23 percent (N1.92trillion) of the total fixed Income market turnover. T.bills within the >3 –6 months maturity bucket was the most traded across short-term tenors9, accounting for 5.60 percent (N0.41trillion)of the total fixed income market turnover, whilst FGN Bonds within the 20 –30 years maturity bucket was the most traded across medium to long term tenors10,accounting for 15.57 percent(N1.14trillion)of the total fixed income market turnover.

Weighted average yields on short-term and medium-term maturities increased MoM by 3.98 percent and 1.59 percent respectively in August 2020, while the weighted average yields on long-term maturities decreased by 0.99 percent. Additionally, inflation-adjusted yields remained negative across the short, medium and long-term tenors in August 2020.

Total turnover in the money market segment decreased MoM and YoY by 48.70 percent (N3.00trillion) and 9.97 percent (N0.35trillion) respectively to a total of N3.16trillion in August 2020. This was driven by the MoM and YoY decreases of49.92 percent (N3.03trillion) and 11.11 percent (N0.38trillion) respectively in Repos/Buy-Backs turnover to N3.04trillion in August 2020 possibly due to increase in inter-bank liquidity from net redemption of N0.44trillion in OMO bills in August 2020, whilst turnover in unsecured placements/takings increased MoM and YoY by 33.33 percent (N0.03trillion) to N0.12trillion in August2020. Consequently, average O/N11and OBB12rates decreased by 189bps and 178bps to close at 8.60 percent and 7.75 percent respectively in August2020 from 10.49 percent and 9.53 percent recorded in July2020.

Market surveillance showed that total number of executed trades reported on the Bloomberg E-Bond Trading System in August2020 was 4,921,representing a MoM increase of 9.43 percent (424) from the number of executed trades recorded in July2020 (4,497). This was driven by the MoM increase recorded across executed trades on T.bills and OMO bills whilst executed trades on FGN Bonds recorded a MoM decrease of 4.75 percent (122) in August2020.