Business activities in the Fixed Income and Currency market received a boost in first quarter of 2022 as investors’ interest in short -term, interest -yielding instruments, increased month-on-month, with total turnover in three months standing at N43.52trillion. BAMIDELE FAMOOFO reports.
In three months, investors in the FIC market under the platform of the FMDQ Exchange increased by 7.3 percent from N14.13 trillion in January 2022 to N15.16 trillion in March 2022.
Turnover in the market in first quarter ended March 31, stood at N43.52 trillion as investors’ participation in the FMDQ platform.
The FMDQ Exchange financial markets monthly report showed that total market turnover increased from N14.13 trillion in January to N14.23 trillion representing 0.71 percent. Turnover further recorded a boost in March as it grew by 6.54 percent to N15.16 trillion.
Review of market activities by sector
Primary Market
The Debt Management Office sold T.bills valued at N410.72bn across its auctions in primary market in March 2022. Demand for treasury bills exceeded supply as only N237.29billion was offered to investors who bided for N410.72bilion.
According to the FMDQ, “this exceeded the amount offered (N237.29bn) indicating the sustained demand for T.bills, it represents a 13.16 percent (N62.25bn) MoM decrease in T.bills sold relative to February 2022 (N472.97bn).
Similarly, the DMO sold 10 year and 20 year FGN Bonds valued at N297.01bn indicating its sustained demand, although it represents a 28.50 percent (N118.41bn) MoM decrease from the N415.42bn sold for the same issues in February 2022.
“FX market turnover was N2.73trn ($6.55bn) in March 2022, representing a MoM increase of 18.18 percent (N0.42trn) from the turnover recorded in February 2022 (N2.31trn)
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In March 2022, the Central Bank of Nigeria sold OMO Bills worth N170.00bn representing 100 percent of the amount offered (N170.00bn) and 37.04 percent (N100.00bn) decrease from N270.00bn worth of OMO bills sold in February 2022.
Non-Sovereign Securities
Total value of corporate bonds listed on FMDQ Exchange in March 2022 was N45.30bn representing a 51.03 percent (N47.20bn) MoM decrease from the value of corporate bonds listed in February 2022 (N92.50bn) despite the MoM increase in the number of listings from two to three bonds. Corporate bond listings varied across Oil & Gas (2) and Transportation & Logistics sectors (1).
Similarly, total value of Commercial Papers quoted on FMDQ Exchange in March 2022 was N72.06bn, representing a MoM decrease of 26.33 percent (N25.76bn) from the value of CPs quoted in February 2022 (N97.82bn). Quoted CPs varied across financial services (6), Agriculture (1) and manufacturing (4) sectors.
In March 2022, total outstanding value for corporate bonds and CPs increased MoM by 3.28 percent (N32.58bn) and 21.84 percent (N50.86bn) to N1, 026.15bn and N283.75bn respectively.
Secondary Market
Turnover in FMDQ markets for the month ended March 31, 2022 was N15.16trn, representing a MoM increase of 6.54 percent (N0.93trn) and year-on-year (YoY) decrease of 22.46 percent (N4.39trn), respectively.
Foreign Exchange and Money Market transactions were the highest contributors to the FMDQ markets turnover in March 2022, jointly accounting for 53 percent of the total FMDQ markets turnover.
Spot Market
Total market turnover for all products traded in the spot market was N13.12trn in March 2022, representing a MoM increase of 5.04 percent (N0.63trn) from the turnover recorded in February 2022 (N12.49trn). The MoM increase in total spot market turnover was driven by the 18.18 percent (N0.42trn) and 14.34 percent (N0.41trn) increase in FX market and money market (MM) turnover despite the 2.61 percent (N0.19trn) decrease in fixed income (FI) market turnover in March 2022.
The MoM decrease in FI market turnover was driven by the MoM decrease in T.bills and FGN Bonds by 13.77 percent (N0.19trn) and 13.00 percent (N0.26trn) respectively despite the 1.93 percent (N0.06trn), 25.32 percent (N0.20trn) and 33.33 percent (N0.01trn) increase in OMO Bills, CBN Special Bills and Other Bonds respectively.
Spot FX Market
FX market turnover was N2.73trn ($6.55bn) in March 2022, representing a MoM increase of 18.18 percent (N0.42trn) from the turnover recorded in February 2022 (N2.31trn).
In the FX Market, the Naira depreciated against the US Dollar, losing 0.05 percent ($/N0.22) to close at an average of $/N416.54 in March 2022 from $/N416.32 recorded in February 2022.
Further, exchange rate volatility remained constant (traded within 100bps) in March 2022 compared to February 2022 as the Naira traded within an exchange rate range of $/N416.00 – $/N417.00 in March 2022 compared to $/N415.75 – $/N416.75 recorded in February 2022.
Spot Fixed Income Market
FI market turnover was N7.12trn in March 2022, representing a MoM decrease of 2.73% (N0.20trn) from the turnover recorded in February 2022 (N7.32trn). In March 2022, CBN Special Bills were the most traded FI securities, with a 25.32 percent (N0.20trn) MoM increase in turnover to N0.99trn.
Similarly, turnover across other fixed income products such as OMO Bills and Other Bonds also increased MoM in March 2022. Trading intensity for OMO bills increased by 126bps to 3.91 from 2.65 in February 2022.
T.bills within the >6M – 12M tenor range were the most traded sovereign debt securities, accounting for 37.00% (N1.08trn) of turnover for sovereign debt securities, while FGN Bonds with term-to-maturity of >5Y – 10Y were the most traded long-term sovereign debt securities, accounting for 13.96% (N0.41trn) of total turnover for sovereign debt securities.
In March 2022, the yield spread between the 3M and 30Y sovereign debt securities increased by 2.60ppts to 11.40ppts, indicating a steepening of the sovereign yield curve. Real (inflation-adjusted) yields remained negative across the yield curve in March 2022.
Total turnover in the money market segment increased MoM by 14.34 percent (N0.41trn) to N3.27trn in March 2022. The MoM increase was driven by the 10.99 percent (N0.31trn) and 250.00 percent (N0.10trn) increase in Repos/Buy-backs and Unsecured Placement/Takings turnover, respectively. The average O/N rate and OPR rate (secured lending rate) increased by 0.35ppts and 0.24ppts respectively, to close at an average of 7.05 percent and 6.52 percent in March 2022.
Derivatives Market
Total market turnover for products traded in the derivatives market was N2.04trn in March 2022, representing a MoM increase of 17.24 percent (N0.30trn) from the turnover recorded in February 2022 (N1.74trn). The MoM increase in derivatives market turnover was solely driven by the increase in FX market turnover by 17.24 percent (N0.30trn) in March 2022 to N2.04trn. The MoM increase in FX derivatives turnover was driven by MoM increase in turnover for FX Swaps and FX Forwards despite the decrease in FX Futures.
January in retrospect
FMDQ Securities Exchange has announced that turnover in the fixed income and currencies markets (FIC) in January 2022 stood at N14.13 trillion, representing a month-on-month (MoM) decrease of N6.41 trillion from N20.54 trillion in December 2021
The figures also represent a year-on-year (YoY) increase of 8.44 per cent (N1.10 trillion) over N13.03 trillion recorded in the corresponding period in January 2021 respectively.
In its January 2022 edition of (FIC) markets analysis, FMDQ Exchange also stated total foreign exchange (FX) market turnover in January 2022 was $10.13 billion (N4.22 trillion), representing a MoM decrease of 38.12 per cent ($6.24 billion) from the turnover $16.37 billion recorded in December 2021
According to the exchange, the MoM decrease in total FX market turnover was driven by the 25.03 per cent ($2.18 billion) and 53.02 per cent ($4.07 billion) MoM decrease in FX spot and FX derivatives turnover, respectively in January 2022.
It explained that the MoM decrease in FX derivatives turnover was driven by MoM decrease in turnover for FX swaps, FX futures and FX forwards by 69.97 per cent ($3.12 billion), 73.76 per cent ($0.54 billion) and 16.74 per cent ($0.42 billion), respectively.
The contribution of FX derivatives to total FX market turnover decreased by 11.27 percentage points (ppts) to 35.61 per cent in January 2022.
In addition, it noted that FX and money market (mainly repurchase agreements or (Repos)) transactions were the highest drivers of market turnover, accounting for 57 per cent of the total FIC markets turnover within the period.
In the OTC FX futures market, the near-month contract (NGUS JAN 26, 2022) expired and open positions with a total notional value (NV) of $0.54 billion were settled. A far month (60M4) contract, NGUS JAN 27, 2027 was introduced at a Futures price of $/N626.97.
The total NV of open OTC FX Futures contracts as at January 31, 2022, stood at circa $4.90bn representing a MoM and YoY decrease of 8.07 per cent ($0.43 billion) and 31.28 billion ($2.23 billion) respectively from its value as of December 31, 2021 and January 31, 2021.
“Average discount rates for CBN OMO bills with comparable tenors remained flat within the range of 7.00 percent – 10.10 percent in January 2022
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Further analysis of the report showed that the Naira appreciated against the US Dollar, gaining 0.06 per cent ($/N0.26) to close at an average of $/N416.55 in January 2022 from $/N416.81 recorded in December 2021.
Exchange rate volatility also decreased in January 2022 compared to December 2021 as the Naira traded within an exchange rate range of $/N415.33 – $/N422.67 in January 2022 compared to $/N414.06 – $/N435.00 recorded in December 2021.
In the primary markets, average discount rates for the 91-day T.bills remained constant at 2.49 percent in January 2022. However, the 182-day T.bills declined by 0.08ppts to 3.37 per cent whilst the 364-day T.bills increased by 0.50 ppts.
Average discount rates for CBN OMO bills with comparable tenors remained flat within the range of 7.00 percent – 10.10 percent in January 2022.
Also, within the same period, the coupon rates of reopened issues of 10Y10 and 20Y FGN11 Bonds decreased by 0.15ppts and 0.10ppts to 11.50 percent and 13.00 per cent from 11.65 per cent and 13.10 percent recorded in December 2021 respectively.
The report also revealed that OMO bills were the most traded FI securities despite the 23.01 percent (N0.81trillion) MoM decrease in turnover. Trading intensity for OMO bills decreased by 25 basis points (bps) to 1.73 from 1.98 in December 2021.
Similarly, turnover across other fixed income products such as T.bills, CBN Special Bills and other securities also decreased MoM in January 2022, except turnover for FGN bonds which increased MoM by 12.93 percent (N0.19 trillion), to N1.66 trillion in January 2022.
