FMDQ: Investors Splash N17.23trn on Fixed Income, Currency Instruments in June

A towel with a print of the Nigerian naira is displayed for sale at a street market in the central business district of Lagos, Nigeria, February 4, 2016. REUTERS/Akintunde Akinleye/File Photo - RTSS1XD

Bamidele Famoofo

Investors, who earn a living from short-and medium-term instruments offered in the money market, increased their spending by 20.53 per cent in June as total investments in the Fixed Income and Currency (FIC) markets rose to N17.23trillion.

“Transaction turnover in the markets for the month ended June 30, 2018 amounted to N17.23trillion, a 20.53 per cent (N2.93trillion) increase from the value recorded in May and a 36.49 percent (N4.61trillion) increase year –on- year(YoY),”a statement from FMDQ OTC revealed.

The treasury bills and FX segments jointly accounted for 79.35 per cent of total turnover in the FIC market in June, representing a marginal increase of 3.44 percentage points from the 75.91 per cent recorded in May. FX market turnover recorded the highest month-on-month increase, growing by 34.50 percent (N1.79trillion), while unsecured placement/takings turnover recorded the highest month-on-month (MoM) decrease, falling by 42.54 percent (N0.03trillion).

Total FX market turnover in the review month was $19.80billion, a 34.04 percent ($5.03billion) increase from the turnover recorded in May ($14.77billion). Turnover at the Investors & Exporters (I&E) FX Window in June was $3.93billion, representing a 38.59 percent ($2.47billion) MoM decrease from the value recorded in May ($6.40billion), and resulting in a decrease in its contribution to the total FX market turnover to 19.85per cent from 43.33per cent in May. However, the total turnover at the I&E FX Window for half year -ended June 2018, increased to $30.28billion.

Analysis of FX turnover by trade type showed that turnover increased across all trade types, with Inter- Member trades recording the highest relative MoM growth in turnover, increasing by 82.65per cent ($1.35billion), while Member-Clients trades recorded the highest nominal MoM growth in turnover, increasing by $2.52billion (28.97 per cent). Member-CBN trades also recorded a MoM increase in turnover by 26.11 per cent ($1.16billion).

In terms of contribution to total FX turnover, Inter-Member trades contributed 15.05 per cent to total FX turnover in June, a 4.01ppts increase from the 11.04 per cent contribution recorded in May. Member-Client and Member- CBN trades both contributed 56.62 per cent and 28.28 per cent to total FX turnover in June, decreasing from 58.90 per cent and 30.06percent in May respectively

Analysis of FX turnover by product type showed that turnover in FX Spot and Derivatives increased MoM in line with the trend in total FX turnover, with both increasing by 29.82per cent and 46.60per cent respectively.

FX Spot remained the main driver of total FX turnover, with a MoM increase by $2.80billion (29.70 per cent), while FX Derivatives recorded a MoM increase of $2.25billion (41.59 per cent) driven mainly by FX Futures turnover which increased MoM by $2.39billion (292.68 per cent).

In June, the 24th naira-settled OTC FX Futures contract (NGUS JUN 27, 2018) with a contract size of $638.87million, matured and was settled, whilst a new $1.00billion 12-month contract (NGUS JUN 26, 2019) was offered by the CBN at $/N362.60.

Also, in June, the naira depreciated at the I&E FX Window, losing N0.35 to close at $/N361.32 (from $/N360.97 as at May 31, 2018). The depreciation of the naira at the I&E FX Window resulted in a lower spread of N0.68 between the $/N rate at the I&E FX Window and the parallel market, due to the appreciation of the Naira by N1.00 at the parallel market in June to close at $/N362.00 (from $/N363.00 as at May 31, 2018). The CBN Official Spot rate appreciated by N0.20 to close at $/N305.75 (from $/N305.95 as at May 31, 2018)

The total turnover in the fixed income market was N7.85trillion in June, representing a 19.73 per cent (N1.29trn) MoM increase in turnover. The increase in turnover was driven mainly by an 18.13per cent (N1.02trillion) MoM increase in T.bills turnover, as it remained the major driver of liquidity in the fixed income market, accounting for 84.95per cent of the total fixed income market turnover, albeit 1.15 percentage points lower than its contribution in May.

Total T.bills outstanding as at June 30, 2018 stood at N13.76trillion, representing a 1.75 per cent (N0.24trillion) MoM decline, driven by a net redemption of T.bills in the month of June. Conversely, total FGN Bonds outstanding increased marginally by 0.41 percent (N0.03trillion ) MoM to close at N7.83trillion, suggesting the FGN refinanced some of its short-term obligations with longer term FGN Bonds while increasing cash liquidity in the market

Trading intensity in the T.bills and FGN Bonds markets increased from 0.41 and 0.11 in May, to 0.48 and 0.15 in June respectively, while trading intensity for T.bills and FGN Bonds in first half of 2018 were 2.67 and 0.71, compared to 3.75 and 0.79 in H1 2017 respectively. T.bills within the 6-12 months maturity remained the most actively traded, accounting for 28.28 percent of the total fixed income market turnover in June, despite decreasing from the 37.42 percent contribution reported in May.

Turnover recorded in the secured money market (i.e. Repos/Buy-Backs) was N2.32trillion for June, representing a 4.70 per cent (N0.11trillion) MoM decrease from the value recorded in May (N2.44trillion), and a YoY decrease of 33.98 per cent in June, compared to the 6.98 per cent YoY decrease recorded in May.

Similarly, unsecured placements/takings closed the month with a turnover of N42.66billion, representing a 42.54 percent (N31.59billion) MoM decrease on the turnover recorded in May (N74.25billion), and a YoY decrease of 68.23per cent (N91.64billion).

Average O/N7 NIBOR8 decreased by 11.12ppts to close at 11.65 per cent in June from 22.77 per cent reported for May, suggesting an increase in liquidity in the inter-bank market, possibly driven by injection of cash in the market from the FGN’s activity in the fixed income market during the month.

Total number of executed trades reported on the E-Bond Trading System in June was 13,101, representing a MoM decline of 5,969 in the number of executed trades, as total executed trades in T.bills and FGN bonds declined by 5,162 (31.15 per cent) and 807 (32.32 per cent) respectively in June 2018.