Turnover in the Fixed Income and Currency (FIC) markets for the month ended March 31, 2019 was N28.98trillion, the OTC market summary released recently by FMDQ OTC Securities Exchange shows.
The record FIC turnover as at end of March 2019 represents 51.09percent or N9.80trillion month-on-month (MoM) increase on the turnover recorded in February 2019 which was N19.18trillion. Likewise, it represents 84.47percent year-on-year (YoY) increase from N15.71trillion recorded in February 2018.
The report shows that Treasury Bills (T.bills) and Foreign Exchange (FX) market segments remain the major drivers of turnover in the FIC markets, jointly accounting for 75.71percent of turnover in March 2019, which was 2.17 percentage points (ppts) lower than their contribution in February 2019 (77.88percent).
FX Market
Total FX market turnover in March 2019 was $33.26billion (N12trillion), representing 127.92percent ($18.67billion) MoM increase from the turnover recorded in February 2019 ($14.59billion). Analysis of FX turnover by trade type indicates an increase across all three (3) segments, as FX turnover for Inter-Member, Member-Clients and Member-CBN trades increased by 76percent, 107.41percent and 221.49percent respectively.
The increase in FX turnover for Member-Clients and Member CBN was driven by the increase in turnover in OTC FX Futures market segment which is largely attributable to increased Foreign Portfolio Investor (FPI) inflows.
Conversely, turnover at the Investors & Exporters (I&E) FX Window in March 2019 recorded 18.04percent ($1.65billion) MoM decrease to close at $7.48billion from the $9.13billion recorded in February 2019 and a 65.85percent ($2.97billion) YoY increase from the $4.51billion recorded in March 2018.
Analysis of FX turnover by product type showed an increase in both FX Spot and FX Derivatives, with FX Spot recording a MoM increase of 144.68percent ($12.69billion) and accounting for 67.98percent of the total MoM increase in FX turnover.
The MoM increase of 102.64percent ($5.97billion) in FX Derivatives was driven by increases in FX Forwards, Swaps and Futures turnover by 76.61percent, 73.60 percent and 282.28percent respectively.
In March 2019, the 33rd Naira-settled OTC FX Futures Contract (NGUS MAR 27 2019) with total open contract size of $505.25million matured and was settled, bringing the total value of OTC FX Futures contracts settled on FMDQ since inception to c.$14.84bn; out of FX Futures contracts worth $22.05billion traded to date. A new 12-month contract (NGUS MAR 25 2020) with a notional principal of $1.00bn and price of $/N362.29 was listed on FMDQ
In March 2019, the Naira appreciated against the US Dollar at the I&E FX Window N0.31to close the month at $/N360.68 but remained unchanged in the parallel market at $/N360. Conversely, the CBN Official Spot rate depreciated by 10 kobo to close at $/N306.95 (from $/N306.85 recorded in February 2019).
Fixed Income Market (T.bills and FGN bonds)
Total T.bills (including OMO7 bills) outstanding recorded a MoM increase of 4.31percent (N0.69trillion) to close at N16.80trillion, with OMO Bills accounting for 100percent of the MoM increase while actual T.bills outstanding remained unchanged, as the CBN continued its liquidity mop up via OMO auctions to curtail build-up of inflationary pressure.Similarly, FGN bonds outstanding value increased MoM by 1.43percent (N0.12trillion) to close at N8.64trillion as at March 29, 2019. Furthermore, the split in sovereign debt between long- and short -term debt as at March 2019 was 77:23 (long- vs. short-term), slightly higher than the target ratio of 75:25 outlined in the FGN’s Debt Management
Strategy
Trading intensity in the T.bills and FGN bonds markets increased from 0.54 and 0.12 in February 2019, to 0.60 and 0.18 in March 2019 respectively. Trading intensity in markets stood at 1.60 and 0.38 respectively compared to 1.27 and 0.33 as at the same period in 2018, due to the 52.61percent (N9.65trillion) growth in T.bills and FGN bonds YTD turnover.
T.bills within the 6-12 months maturity bracket remained the most actively traded in March 2019, accounting for 59.89percent of the total FI market turnover. In March 2019, the weighted average rate of yields on short-and long-term maturities on the sovereign yield curve increased by 0.47ppts and 0.26ppts respectively. Conversely, weighted average rate of yields on medium-term maturities on the sovereign yield curve declined by 0.91ppts.
Yield spread between the 3-month T.bills and the 10-year FGN bond declined by 65 basis points (bps) to close at 3.07ppts in March 2019 (3.72ppts in February 2019) with the yield on the 3-month T.bills and 10-year FGN bond increasing by 1.42percent and 0.77percent respectively, suggesting lower prices and more sell-offs at the shorter end of the curve.
The speculations of market participants in February 2019 were that the CBN would reduce the frequency of OMO issuances; however CBN resumed regular OMO auctions in March 2019 which contributed to the increase in rates. Furthermore, market participants focused their activities on securities with medium to long term maturities Money Market (Repos/Buy-Backs and Unsecured Placements/Takings)
Turnover recorded in the Repos/Buy-Backs segment of the Money Market was N5.38trillion in March 2019, representing a 74.24percent (N2.29trillion) MoM increase from N3.09trillion recorded in February 2019, and a 105.25percent (N2.76trillion) YoY increase from the turnover recorded in March 2018.
Similarly, Unsecured Placements/Takings closed the month with a turnover of N146.09billion, representing a 43.17percent (N44.05billion) MoM increase from N102.04billion recorded in February 2019, and a YoY increase of 7.48percent (N10.17billion).
Average Overnight (O/N) NIBOR declined by 6.04ppts to close at 12.88percent in March 2019 from 18.93percent reported for February 2019, indicating an increase in liquidity in the inter-bank market which was as a result of a decrease in the frequency of OMO auctions in March 2019 as well as the 1.72percent increase in Federation Accounts Allocation Committee (FAAC) disbursements shared in March 2019 (N660.37billion).
Market Surveillance
Total number of executed trades reported on the E-Bond Trading System in Mar ‘19 was 21,290 representing a 16.03percent (2,942) MoM increase from the number of trades executed in February 2019 (18,348), driven by a MoM increase in T.bills and FGN bonds trades by 1,646 (9.90percent) and 1,296 (75.26percent) respectively.
Iheanyi Nwachukwu
