Here’s how fixed income, currencies markets performed in March

The monthly report of the FMDQ Securities Exchange shows that turnover in the Fixed Income and Currencies (FIC) markets for the month ended March 31, 2021, was N19.55trillion, representing a month-on-month (MoM) increase of 10.20percent (N1.81trillion) and a YoY decrease of 32.54percent (N9.43trillion).

Foreign Exchange (FX) and OMO bills transactions were the highest contributors to the FIC markets in March 2021, jointly accounting for 56.52percent of the total FIC markets turnover.

According to the report, total FX market turnover in March 2021 was $12.35billion (N5.07trillion), representing a MoM increase of 16.51percent ($1.75billion) from the turnover recorded in the previous month ($10.60billion).

FX Derivatives turnover increased MoM by 28.01percent ($1.84billion) in March 2021, offsetting the 2.23percent ($0.09billion) decrease in FX Spot turnover, and accounting for the total increase in FX market turnover.

FMDQ Securities Exchange said the MoM increase in FX Derivatives turnover was jointly driven by the MoM increase of 71.48percent ($2.31billion) and 14.81percent ($0.12billion) in FX Swaps and FX Futures turnover respectively, offsetting the 4.72percent ($0.05billion) and 20.93percent ($0.36billion) MoM decrease in FX Forwards and Other Derivatives turnover respectively.

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In the OTC FX Futures market, the near month contract (NGUS MAR 31, 2021) with a total outstanding notional value (NV) of $1.70billion matured and was settled, while a new long term (60M) contract, NGUS MAR 25, 2026 was introduced at a Futures price of $/N605.76. The total NV of open OTC FX Futures contracts as at March 31, 2021 stood at approximately $5.09billion, representing a further decrease of 14.74percent ($0.88billion) from its value as at February 26, 2021 (circa $5.97billion) and continuing its downward trend since May 2020.

The average Central Bank of Nigeria (CBN) Official Spot $/N exchange rate remained constant at $/N379 in March 2021. Conversely, the Naira depreciated against the US Dollar at the Investors’ and Exporters’ (I&E) FX Window, trading within a range of $/N381 and $/N427.45 in March 2021, and losing 1.50percent ($/N6.05) to close at an average of $/N409.85 in March 2021 from $/N403.80 recorded in February 2021.

Similarly, the Naira depreciated against the US Dollar in the parallel market, losing 1.18percent ($/N5.65) to close at an average of $/N484 in March 2021 from $/N478.35 recorded in February 2021. Consequently, the average spread between the exchange rates in the formal (I&E FX Window) and unregulated (parallel) FX markets reduced by 0.55percent ($/N0.41) to $/N74.15 in March 2021, from $/N74.55 recorded in February 2021.

In the primary markets, average discount rates for the 91-day, 182-day and 364-day T.bills increased MoM by an average of 1.22 percentage points (ppts), to close at a range of 2percent -7.17percent in March 2021, while the discount rates for CBN OMO bills remained constant MoM to close at a range of 7percent – 10.10percent in March 2021. The coupon rates for the 10Y, 15Y and 25Y FGN10 bond issuances in March 2021 increased by an average of 0.23ppts to close at a range of 10.50percent – 12percent.

Turnover for OMO bills decreased by 8.84percent (N0.58trillion) to N5.98trillion, contributing to the decrease in its trading intensity to 1.93 in March 2021 from 1.97 recorded in February 2021. Similarly, FGN bonds turnover decreased by 30.19percent (N0.64trillion) to N1.48trillion, resulting in a decrease in its trading intensity to 0.13 in March 2021 from 0.19 recorded in the previous month.

Conversely, T.bills’ and CBN Special bills turnover increased MoM by 80.21percent (N0.77trillion) and 363.33percent (N1.09trillion) to N1.73trillion and N1.39trillion respectively in March 2021. The increase in T.bills turnover resulted in the increase in its trading intensity to 0.67 in March 2021.

In March 2021, 6M – 12M OMO bills and T.bills were the most traded debt and short term sovereign debt securities respectively, accounting for 64.65percent (N6.84trillion) of the total Fixed Income market turnover, while 20Y FGN Bonds remained the most active long-term sovereign debt securities, accounting for 4.35percent (N0.46trillion) of the total Fixed Income market turnover.

There was a general MoM increase in yields across all tenors on the yield curve in March 2021, except on the 10Y tenor whose yield remained constant MoM at 10.84percent. The yield spread between the 3M and 30Y sovereign debt securities decreased by 1.30ppts to 9.05 points (ppts) in March 2021, indicating a flattening of the sovereign yield curve while real (inflation-adjusted) yields remained negative across the yield curve in March 2021.

Total turnover in the Money Market segment increased MoM by 10.69percent (N0.37trillion) to N3.83trillion in March 2021. This was solely driven by the MoM increase in Unsecured Placements/Takings turnover by N0.55trillion to N0.70trillion, offsetting the N0.18trillion decrease in Repo/Buy-backs turnover which stood at N3.13trillion in March 2021. Consequently, the average overnight (O/N) rate (unsecured lending rate) increased by 3.83ppts to close at 12.26percent in March 2021 from 8.43percent recorded in the previous month.

The total number of executed trades15 reported on the Bloomberg E-Bond Trading System decreased MoM by 8.60percent (395) to 4,196 in March 2021 from 4,591 recorded in February 2021. This was solely driven by the MoM decrease in the number of trades for FGN bonds in March 2021 which offset the MoM increase the number of trades recorded for T.bills and OMO bills.