FIC markets record N66.5trn investment in 4 months

The Fixed Income and Currencies (FIC) markets, where primarily short-term yield instruments are traded, attracted N66.5trillion investments from investors, especially banks in the first four months in 2021. The value of investment recorded in the market in the review period is five times bigger than Nigeria’s 2021 budget of N13trillion. Transaction in Foreign Exchange (FX) accounted for about 27 percent of total turnover valued at N17.73trillion.

Breakdown of performance of turnover in the market in the review period showed that the biggest chunk of investment was done in the month of March; when investors splashed N19.55trillion on various investment instruments which among others include foreign exchange, OMO bills, FX spot, FX derivatives and OTC FX Futures. As usual, investors traded more in foreign exchange and OMO bills.

Turnover for the month ended April 30, 2021 was N16.18trillion, representing a month-on-month (MoM) and year-onyear (YoY) decrease of 17.24% (N3.37trn) and 3.11 percent (N0.52trn) respectively. Total Foreign Exchange (FX) market turnover in April 2021 was $12.44billion (N5.11trn), representing a MoM increase of 0.73 percent ($0.09bn) from the turnover recorded in March 2021 ($12.35bn).

In April 2021, the Central Bank of Nigeria’s Official Spot FX rate remained constant at an average of $/N379.00. At the Investors’ and Exporters’ (I&E) FX Window, the Naira depreciated against the US Dollar, losing 0.12% ($/N0.51) to close at an average of $/ N410.36 in April 2021. Similarly, in the parallel market, the Naira depreciated against the US Dollar, losing 0.05% ($/N0.25) to close at an average of $/ N484.25 in April 2021. Foreign Exchange (FX) and Money Market transactions were the highest contributors to the FIC markets in April 2021, jointly accounting for 54.57 percent of the total FIC markets turnover.

FX Spot turnover increased MoM by 24.62 percent ($0.97bn) to $4.91billion in April 2021, offsetting the 10.46 percent ($0.88bn) decrease in FX Derivatives turnover, and accounting for the total increase in FX market turnover in April 2021. The MoM decrease in FX Derivatives turnover was jointly driven by the MoM decrease of30.33 percent ($1.55bn) and 34.56 percent ($0.47bn) in FX Swaps and Other Derivatives turnover respectively, offsetting the 61.29 percent ($0.57bn) and 56.44 percent ($0.57bn) MoM increase in FX Futures and FX Forwards turnover respectively.

In the OTC FX Futures market, the near month contract3 (NGUS APR 28, 2021) with a total outstanding notional value (NV) of $0.75billion matured and was settled, whilst a new long-term (60M4) contract, NGUS APR 29, 2026 was introduced at a Futures price of $/N613.33. The total NV of open OTC FX Futures contracts as at April 30, 2021 stood at c.$4.63billion representing a further decrease of 9.04 percent ($0.46bn) from its value as at March 31, 2021 and continuing its downward trend since May 2020. The average Central Bank of Nigeria (CBN) Official Spot $/N exchange rate remained constant at $/ N379.00 in April 2021. Conversely, the Naira depreciated against the US Dollar at the Investors’ and Exporters’ (I&E) FX Window, losing 0.12 percent ($/N0.51) to close at an average of $/N410.36 in April 2021 from $/N409.85 recorded in March 2021, and trading within a range of $/N405.00 and $/N438.00in April. Similarly, the Naira depreciated against the US Dollar in the parallel market, losing 0.05 percent ($/ N0.25) to close at an average of $/N484.25 in April 2021 from $/N484.00 recorded in March 2021.

Consequently, the average spread between the exchange rates in the formal (I&E FX Window) and unregulated (parallel) FX markets reduced by $/N0.26to $/ N73.89in April2021, from $/N74.15 recorded in March 2021. In the primary markets, average discount rates for the 91-day, 182-day and 364-day T.bills6increased MoM by an average of 0.74 percentage points (ppts), to close at a range of 2.00% -9.38% in April 2021, conversely, the average discount rates for CBN OMO7bills for comparable tenors decreased MoM marginally by 0.01ppts to close at a range of 7.00% -10.07% in April 2021.

The coupon rates for the 10Y9, 15Y and 25Y FGN10bond issuances in April2021 increased by an average of 1.81ppts to close at a range of 12.25% -13.85%. Turnover for OMO bills decreased by 45.48 percent (N2.72trn) to N3.26trillion, contributing to the decrease in its trading intensity to 1.13 in April 2021 from 1.93 recorded in March2021. Similarly, T.bills’ and CBN Special bills turnover decreased MoM by 11.56 percent (N0.20trn) and 64.75 percent (N0.90trn) to N1.53trillion and N0.49trillion respectively in April 2021. Conversely, FGN bonds turnover increased by 37.84 percent (N0.56trn) to N2.04trillion, resulting in an increase in its trading intensity to 0.18 in April 2021(0.13 in March 2021). In April 2021, 6M –12M OMO bills were the most traded debt securities, accounting for 41.53 percent (N3.04trn) of the total Fixed Income market turnover, while 3M –6M T.bills and >20Y FGN Bonds were the most active short-term and long-term sovereign debt securities respectively, accounting for 11.20 percent (N0.82trn) and 12.30 percent (N0.90trn) of the total Fixed Income market turnover.

There was a general MoM increase in yields across all tenors on the yield curve in April 2021, except for the 6M tenor which recorded MoM decrease in yield by 0.09ppts to 4.26% in April 2021. The yield spread between the 3M and 30Y sovereign debt securities increased by 1.80ppts to 10.85ppts in April 2021, indicating a steepening of the sovereign yield curve. Real (inflation- adjusted) yields remained negative across the yield curve in April 2021 with the 20Y tenor recording the highest real yield as at April 30, 2021.

Total turnover in the Money Market segment decreased MoM by 2.87 percent (N0.11trn) to N3.72 trillion in April 2021. This was solely driven by the MoM decrease in Unsecured Placements/Takings turnover by N0.53trillion to N0.17trillion, offsetting the N0.42trillion increase in Repo/Buy-backs turnover which stood at N3.55trillion in April 2021. Consequently, the average OBB rate (secured lending rate) increased by 4.02ppts to close at 15.65 percent in April 2021 from 11.63 percent recorded in the previous month.

The total number of executed trades 15 reported on the Bloomberg E-Bond Trading System decreased MoM by 13.51 percent (567) to 3,629 in April 2021 from 4,196 recorded in March2021. This was jointly driven by the MoM decrease in the number of trades for OMO bills and FGN bonds in April 2021 which offset the MoM increase the number of trades recorded for T.bills in the same period.




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