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Fixed income, currency market turnover in May lowest since January 2018

Nigeria’s Fixed Income and Currency (FIC) markets turnover for the month ended May 29, 2020 was N11.78trillion, indicating a month-on-month (MoM) decrease of 29.46percent (N4.92trillion) from the turnover recorded in April 2020 (N16.70trillion), according to the latest monthly report released by FMDQ Securities Exchange.

The FIC market turnover in May represents a year-on-year (YoY) decrease of 42.51percent (N8.71trillion) from the turnover recorded in May 2019 (N20.49trillion).

The turnover recorded in the FIC markets in May 2020 represents the lowest turnover recorded since January 2018 (N11.71trillion). However, year-to-date (YtD) turnover increased to N100.80trillin representing a YoY increase of 0.70percent (700billion) on the YTD turnover of N100.10trillion recorded in May 2019.

The Money Market

Repurchase Agreements (Repos) & Unsecured Placements transactions and OMO bills jointly accounted for 61.26percent of the total FIC market turnover recorded in May 2020, as Money Market transactions (mainly Repos) replaced Foreign Exchange (FX) as the highest contributor to FIC markets turnover in May 2020, compared to April 2020.

Read also: CBN taps cash reserve ratio debits as backdoor of piling OMO costs

FX Market

Total FX market turnover in May 2020 was $7.62billion (N2.94trillion), representing a MoM decrease of 32.92percent ($3.74billion) from the turnover recorded in April 2020 ($11.36billion; N4.38trillion), continuing the recent downward trend in FX turnover since April 2020, albeit at a slower rate than the MoM decrease recorded in April 2020 (60.72percent; $17.57billion).

Analysis of FX market turnover indicated a general decrease in FX market activity by trade type, with Member-Client trades accounting for 55.61percent ($2.08billion) of the total MoM decrease in FX turnover, while FX Derivatives accounted for 89.30percent ($3.34billion) of the total MoM decrease in FX turnover by product type in May 2020.

However, it is noteworthy to mention that the turnover for Member-CBN FX Spot trades increased by 100percent MoM from $0.16billion in April 2020 to $0.32billion in May 2020.

In the OTC FX Futures market, the near month contract (NGUS MAY 27 2020) with a total outstanding notional value of $2.51billion expired and was settled, whilst a new far month (60-month) contract, NGUS MAY 28 2025 was introduced at a contract rate of $/N584.11.

The total notional value of open OTC FX Futures contracts as at May 29, 2020 stood at circa $13.94billion, representing a 7.07percent ($1.06billion) decrease on the value of open contracts as at April 30, 2020 (circa $15billion), while the total notional value of OTC FX Futures contracts traded since inception stood at $46.80billion as at May 29, 2020.

The average CBN Official Spot $/Naira exchange rate remained flat at $/N361 in May 2020 compared to the average rate recorded in April 2020, while the Naira depreciated against the US Dollar at the Investors’ and Exporters’ (I&E) FX Window, losing $/N1.18 (average of $/N384.99 in April 2020) to close at an average of $/N386.17 in May 2020. In the parallel market, the Naira depreciated against the US Dollar losing $/N22.37 (average of $/N426.35 in April 2020) to close at an average of $/N450 in May 2020.

Fixed Income (FI) Market (T.bills, OMO bills and FGN Bonds)

In the primary market, average discount rates on the 91-day T.bill increased by 49 basis points (bps) to 2.48percent in May 2020, representing the first time discount rates have increased since October 2019 when the CBN effectively bifurcated the bills (T.bills and OMO bills)segment of the FI market.

However, the average discount rates on the 182-day and 364-day T.bills declined further by 2bps and 12bps to 2.79percent and 3.93percent respectively in May 2020, while there were no new OMO bills issuances in May 2020.

The coupon rates for newly issued 5-year and 30-year FGN Bonds increased by 20bps and 10bps to 9.20percent and 12.60percent respectively in May 2020, compared to the coupon rates for issuances in April 2020. Conversely, the coupon rate on the 15-year FGN Bond decreased by 30bps to 11.70percent in May 2020

As at May 29, 2020, the total value of T.bills and FGN Bonds outstanding was N2.76trillion and N10.03trillion, representing MoM increases of 4.15percent (N110billion) and 4.05percent (N390billion) respectively, while the total value of OMO bills outstanding was N9.52trillion representing a MoM decrease of 4.23percent (N420billion) from N9.94trillion as at April 30, 2020.

In the secondary market, turnover for T.bills increased significantly by 900percent (N270billion) to N300billion, thus trading intensity for T.bills increased to 0.11 in May 2020 from 0.01 in April 2020, representing the first (1st) MoM increase in trading intensity in 2020.

Conversely, OMO bills and FGN Bonds turnover decreased MoM by 60.89percent (N4.67trillion) and 17.83percent (N0.28trillion) to N3trillion and N1.29trillion respectively in May 2020, resulting in the decline in their respective trading intensities to 0.30 and 0.13 in May 2020 from 0.75 and 0.16 in April 2020

Trading intensity for bills (T.bills and OMO bills combined) increased YoY to 0.52 in May 2020 from 0.43 in April 2020 whilst that of FGN Bonds declined to 0.13 in May 2020, compared to 0.17 recorded in May 2019.

In May 2020, bills within the 6M–12M maturity bucket remained the most traded across all tenors on the sovereign yield curve, accounting for 72.33percent 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 6.97percent of total Fixed Income market turnover.

Weighted average yields on short and medium-term maturities increased by 28.69percent and 0.80percent respectively in May 2020, while the weighted average yields on long-term maturities decreased by 1.03percent in May 2020.

Additionally, inflation-adjusted yield remained negative across the short to medium-term securities (1M – 5Y), while long term securities (that is 7Y – 30Y), excluding the 7Y and 10Y securities recorded positive inflation-adjusted yields in May 2020.

Money Market (Repos/Buy-Backs and Unsecured Placements/Takings)

In May 2020, total turnover in the Money Market segment increased MoM by 39.74percent (N1.20trillion) to N4.22trillion, jointly driven by the 34.68percent and 340percent MoM increases in Repos/Buy-Backs and Unsecured Placements/Takings turnover to N4trillion and N220billion respectively.

However, Money Market turnover in May 2020 represented a YoY decrease of 12.99percent (N630billion) on the turnover recorded in May 2019, due to the YoY decrease of 13.61percent (N630billion) in the Repos/Buy-Backs turnover.

Average overnight (O/N) rates increased by 11bps to close at an average of 5.85percent in May 2020 from 5.74percent recorded in April 2020. Conversely, average OBB rates decreased by 2bps to close at an average of 5.13percent in May 2020 from 5.15percent recorded in April 2020

Market Surveillance

Total number of executed trades reported on the Bloomberg E-Bond Trading System in May 2020 was 3,220, representing a MoM and YoY decrease of 28.03percent (1,254) and 78.45percent (11,725) from the number of executed trades recorded in April 2020 (4,935) and May 2019 (14,945) respectively, as a result of the general decline in market activity due to the impact of the COVID-19 pandemic on economic activity.

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