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Fixed income, currency market review shows N16.45trn in December

Turnover in the Fixed Income and Currency ( FIC) markets for the month ended December 31, 2019 was N16.45trillion, representing a month-on-month (MOM) decrease of 23.88percent (N5.16trillion) on the turnover recorded in November 2019 ( N21.61trillion), FMDQ Securities Exchange report shows.

The record turnover in December represents a yearon-year ( YOY) decrease of 7.11percent (N1.26trillion) in comparison to the turnover recorded in December 2018 ( N17.71trillion). Foreign Exchange ( FX) and OMO bills were the most traded products jointly accounting for 63.79percent of the total FIC market turnover recorded in December 2019.

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FX Market

Total FX market turnover in December 2019 was $18.49billion (N6.74trillion), representing a 10.30percent ($2.12billion) MOM decrease from the turnover recorded in November 2019.

Analysis of FX market turnover by trade type indicated MOM decreases across all categories, with InterMember trades recording the highest percentage MOM decrease at 12.56 percent ($0.38billion), while MemberClient trades recorded the highest MOM decrease in dollar (nominal) terms, at $1.41billion (11.68percent).

Additionally, analysis by product type indicated that the MOM decrease in FX turnover was driven by the 15.73percent ($1.87billion) and 2.88percent ($0.25billion) decrease in FX Spot and FX Derivatives turnover, accounting for 88.18percent and 11.82percent of the MOM decrease in total FX market turnover respectively.

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In December 2019, the Naira-settled OTC FX Futures Contract ( NGUS DEC 24 2019) with total open contract value of $1.71billion matured and was settled, and a new contract, NGUS Jan 27 2021 for $ 1billion at $/ N367.48 was introduced. This brings the total value of open OTC

FX Futures Contracts to c. $9.67billion, while the total value of contracts settled from inception to date stands at c. $33.62billion.

The CBN Official Spot rate for $/N remained constant at $/N307 in December 2019, while, the parallel market rate depreciated by $/N2 to close at $/N362 from $/N360 recorded in November 2019. Further, the Naira depreciated against the US Dollar at the Investors’ and Exporters’ (I&E) FX Window by $/N1.70 to close at $/N364.51 in December 2019 ($/N362.81 in November 2019) Fixed Income Market (T.bills, OMO bills and FGN6 Bonds).

At the end of December 2019, the outstanding value of OMO bills decreased by 9.15percent (N1.31trillion) MOM to N13.01trillion, whilst the outstanding value of T. bills remained flat at N2.58trillion. Conversely, the outstanding value of FGN Bonds increased MOM by 3.17percent (N0.29trillion) to close at N9.43trillion in December 2019.

Trading intensity for T.bills and OMO bills decreased to 0.19 and 0.27 respectively in

December 2019 from 0.86 and 0.28 recorded in November 2019. The substantial decrease in T.bills trading intensity was driven by the 77.48percent (N1.72trillion) MOM decrease in T.bills turnover in December 2019.

Conve r s e l y , t rading intensity for FGN Bonds increased to 0.30 in December 2019 from 0.26 recorded in November 2019. Year-to-date (YTD) trading intensity for bills (T.bills and OMO bills) and FGN Bonds stood at 5.09 and 1.91 respectively compared to 5.50 and 1.49 recorded in the corresponding period in 2018.

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In December 2019, T.bills and OMO bills within the 6M – 12M maturity bracket were the most actively traded among the short-term securities (that is 1M – 5Y) accounting for 32.38percent of the total Fixed Income market turnover, while FGN Bonds within the 20Y – 30Y maturity bracket were the most actively traded among the medium to long- term securities (that is 5Y– 30Y), accounting for 13.69percent of the total Fixed Income market turnover.

Weighted average yields on short, medium and longterm fixed income maturities decreased by 0.79percent, 9.66percent and 0.27percent respectively in December 2019. In addition, the stop rates for T.bills at the primary market declined in December 2019 from the rates recorded in November 2019 across all tenors whilst the stop rates for OMO bills declined for the 205day to the 364-day tenor which is attributable to the continued impact of the CBN directive on OMO auctions; no OMO bills were sold for the 82-day to 112-day tenor. Consequently, inflation-adjusted yield was negative across all tenors of the yield curve excluding the 15Y, 20Y and 30Y tenors which remained positive in December 2019.

Money Market (Repurchase Agreements/buy-backs and Unsecured Placements/ Takings)

Total turnover in the Money Market decreased MOM by 51.39percent (N2.84trillion) to N2.68trillion in December 2019, driven by the Repurchase Agreements/ Buy- Backs segment which recorded a MOM decrease of 52.42percent (N2.84trillion) in turnover to N2.58trillion in December 2019 from N5.42trillion in November 2019.

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