FMDQ Securities Exchange has released its financial markets monthly report for May 2023, saying its secondary market turnover in same month was N15.78trillion, representing a month-on-month (MoM) and year-on-year (YoY) increase of 25.67percent (N3.22trillion) and 2.53percent (N390billion) from April 2023 and May 2022 figures, respectively.
FMDQ Exchange in the report said Foreign Exchange (FX), Money Market (MM) and CBN Bills transactions dominated secondary market activity in May 2023, accounting for 80.25percent of the total secondary market turnover. It also noted that total spot market turnover for all products traded in the secondary market was N13.37trillion in May 2023, representing a MoM increase of 26.21percent (N2.78trillion) from April 2023 figures.
The MoM increase in total spot market turnover was jointly driven by an improvement in turnover across all products with FX, FI and MM transactions increasing MoM by 31.74percent (N690billion), 25.97percent (N1.31trillion) and 22.98percent (N770billion), respectively.
The increase in MM turnover was driven by an uptick in Repos/Buy-backs and Unsecured Placement/Takings transactions. Likewise, the improvement in FI turnover was driven by a MoM increase across all FI products in the review period.
Spot FX market turnover was N2.88trillion ($6.21billion) in May 2023, representing a MoM increase of 31.74percent (N690billion) from the turnover recorded in April 2023 (N2.18trillion).
In the FX Market, the Naira had in May depreciated against the US Dollar, with the spot exchange rate ($/N) increasing by 0.07percent ($/N0.31) to close at an average of $/N463.39 in May 2023 from $/N463.09 recorded in April 2023. Further, exchange rate volatility increased in May 2023 as the Naira traded within an exchange rate range of $/N462.23 – $/N465.13 compared to $/N462 – $/N464 recorded in April 2023.
FI market turnover was N6.36trillion in May 2023, representing a MoM increase of 25.97percent (N1.31trillion) from the turnover recorded in April 2023 (N5.05trillion). The MoM increase in the FI market turnover was jointly driven by an uptick in turnover across all FI products with T.Bills, OMO Bills, CBN Special Bills, FGN Bonds and Other Bonds improving by 15.66percent (N180billion), 18.30percent (N280billion), 49.45percent (N470billion), 27.05percent (N370billion) and 86.43percent (N5billion) respectively.
As a result, the trading intensity (TI) for T.Bills, OMO1 Bills and FGN Bonds increased MoM by 0.04, 10.99 and 0.02 points to 0.29, 21.68 and 0.10 respectively. T.bills and FGN Bonds within the >6M – 12M and >20Y tenors respectively were the most traded sovereign FI securities, accounting for 37.88percent (N1.18trillion) and 19.39percent (N600billion) of the secondary market turnover for sovereign FI securities in the spot market, respectively.
In May 2023, the yield spread between the 3M and 30Y sovereign FI securities increased by 1.53ppts to 11.29percentage points (ppts), indicating a steepening of the sovereign yield curve. Real (inflation-adjusted) yields remained negative across the yield curve in May 2023.
Total turnover in the MM segment improved MoM by 22.98percent (N770billion) to N4.13trillion in May 2023. The MoM increase was jointly driven by the 3.56percent (N120billion) and 2,250.69percent (N650billion) uptick in Repos/Buy-backs and Unsecured Placement/Takings transactions respectively.
The average overnight (O/N) rate and Open Repos (OPR) rate (secured lending rate) decreased MoM by 4.45ppts and 4.56ppts respectively, to close at an average of 12.91percent and 12.41percent in May 2023.
Total turnover in the FX derivatives market segment was N2.40trillion ($5.19billion) in May 2023, representing a MoM increase of 22.77percent (N450billion) from April 2023 figures. The MoM uptick in the FX derivatives turnover was jointly driven by the 9.74percent (N60billion) and 168.62percent (N440billion) improvement in FX Forwards and FX Futures turnover which offset the 5.43percent (N60billion) MoM decrease in FX Swaps transactions, respectively.
In the OTC FX Futures market, the near month contract (NGUS MAY 31, 2023) expired and open positions with a total notional value (NV) of $0.75billion were settled. A far month (60M) contract, NGUS MAY 31, 2028 was introduced at a Futures price of $/N703.61, representing the same Futures price ($/N703.61) when the previous far month contract NGUS APR 26, 2028 was introduced in April 2023.
The cumulative NV of open OTC FX Futures contracts increased for the sixth consecutive month to circa $5.71billion as at May 31, 2023. This represents a MoM and YoY increase of 9.18percent ($0.48billion) and 51.86percent ($1.95billion) from its value as at April 28, 2023 and May 31, 2022, respectively, as hedging activity continues to pick up.
In May 2023, Market activity in the OTC FX Futures accounted for $0.79billion worth of trades. This represents a 195.90percent ($0.30billion) MoM improvement relative to the monthly traded value recorded in April 2023 ($0.27billion) Specifically, the NV of OTC FX Futures contracts traded across the short-dated (1M – 13M) increased by 195.90percent ($0.22billion) to $0.79billion while the long-dated (14M – 60M) contracts did not record any trades for the second consecutive month in May 2023.
As a result, the 7 – 12M tenor range recorded the highest concentration in traded value, accounting for 42.21percent ($0.34billion) of trading turnover across 27 of the 55 deals conducted in the review period.
The average Futures price of OTC FX Futures contracts remained unchanged across all tenor buckets in the review month relative to April 2023. However, MoM changes in Deliverable FX Forwards rates were mixed in May 2023.
The near term (2M) contracts recorded the highest MoM increase in price (i.e., expected depreciation of Nigerian Naira against the US Dollar), while the 12M deliverables FX Forward contracts recorded the highest MoM decrease in price (that is, expected appreciation of Nigerian Naira against the US Dollar) in the review period.