Investors’ confidence grow in ‘FIC’ market, as turnover rises by N1.5trillion in July

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Corporate bonds, commercial papers value N1.68 trn

Uba Group

Investors at the Fixed Income and Currency market have continued to express confidence in the market as they invested additional N1.5 trillion in money market instruments on the platform of the FMDQ in July. This is contrary to the performance of the stock market where the All Share Index has suffered some setbacks in recent times. Year- on- year, turnover on the FMDQ has risen by 16.45 percent or N2.79 trillion as more corporate entities visit the market to raise short- term capital. BAMIDELE FAMOOFO reports.

Secondary market turnover on FMDQ Exchange in July 2022 was N19.76 trillion, representing a month-on-month (MoM) increase of 8.54 percent or N1.55 trillion and a year-on-year (YoY) increase of 16.45 percent or N2.79 trillion, respectively.

Remarkably, total outstanding value for corporate bonds and commercial papers (CPs) increased MoM by 10.95 percent (N113.80bn) and 1.11 percent (N5.78bn) to N1, 153.50 billion and N524.58 billion respectively.

On the contrary, the All Share Index at the stock market dropped by -2.79 percent month- to -date as at the end of trading day to close at 50,370.25 points while year to date return stood at 17.92 percent in July. Earlier in the year, year to date return in the market stood around 20.0 percent.

“Breakdown of performance on the FMDQ in the review period showed that investors traded more in money market products as activities in that segment accounted for 41.56 percent of the total secondary market turnover”

Secondary Market

Breakdown of performance on the FMDQ in the review period showed that investors traded more in money market products as activities in that segment accounted for 41.56 percent of the total secondary market turnover.

Total spot market turnover for all products traded in the secondary market was N17.53 trillion in July 2022, representing a MoM increase of 8.30 percent (N1.34trn) from the turnover recorded in June 2022.

FMDQ disclosed that the MoM increase in total spot market turnover was driven by the 40.82 percent (N2.38trn) and 5.68 percent (N0.17trn) increase in MM and FX transactions, respectively, which offset the 16.38 percent (N1.21trn) decrease in fixed income (FI) transactions in July 2022.

“The increase in MM turnover was driven majorly by an increase in Repo/Buy-Back transactions despite a sharp decline in Unsecured Placements/Takings transactions, while the decrease in FI turnover was driven by the MoM decrease in transactions for all FI products except OMO Bills and Other Bonds,” FMDQ noted.

Foreign Exchange (FX) market turnover was N3.16 trillion ($7.40bn) in July 2022, representing a MoM increase of 5.68 percent (N0.17trn) from the turnover recorded in June 2022 (N2.99trn). In the FX Market, the Naira depreciated against the US Dollar, with the exchange rate ($/N) increasing by 1.43 percent ($/N6.03) to close at an average of $/N427. 01 in July 2022 from $/N420.98 recorded in June2022.

Further, exchange rate volatility increased marginally in July 2022 compared to June 2022 as the Naira traded within an exchange rate range of $/N424.17-$/N431.00 in July 2022 compared to $/N419.00-$/N425.50 recorded in June 2022.

Fixed Income (FI) market turnover was N6.16 trillion in July 2022, representing a MoM decrease of 16.38 percent (N1.21trn) from the turnover recorded in June 2022 (N7.37trn). The MoM decrease in the FI market turnover was driven by the decrease in T.bills, CBN Special Bills and FGN Bonds turnover by N1.63trn, despite the N0.42trn MoM increase in turnover for OMO Bills and Other Bonds.

As a result, the trading intensity (TI) for OMO Bills increased MoM by 0.54points to 2.23 from 1.69 in the previous month of June 2022, while TI for T.bills and FGN Bonds decreased.

T.bills within the>6M12M tenor range were the most traded sovereign debt securities, accounting for 48.80 percent (N0.81trn)of turnover for sovereign debt securities, while FGN Bonds with term-to maturity of>15M–20Y were the most traded long term sovereign debt securities, accounting for 12.65 percent (N0.21trn) of total turnover for sovereign debt securities.

In July 2022, the yield spread between the 3M and 30Y sovereign debt securities decreased by 1.22ppts to 7.89ppts, indicating a flattening of the sovereign yield curve. Real (inflation-adjusted) yields remained negative across the yield curve in July 2022.

At the Spot market segment of the money market, total turnover increased MoM by 40.82 percent (N2.38trn) to N8.21trn in July 2022.The MoM increase was driven by the 42.84 percent (N2.43trn) uptick in Repos/Buy backs turnover, offsetting the 31.74 percent (N0.05trn) MoM decrease in Unsecured Placement/Takings turnover in the month of July 2022. The average O/N rate and OPR rate (secured lending rate) increased MoM by 2.85ppts and 3.04ppts respectively, to close at an average of 14.45 percent and 14.32 percent in July 2022.

Total turnover in the FX derivatives market segment was N2.23trn ($5.20bn), representing a MoM increase of 10.95 percent (N0.22trn) in July 2022. The MoM increase in the FX derivatives turnover in July 2022 was driven solely by the 55.65 percent (N0.45trn) increase in FX Swaps turnover, offsetting the 14.70 percent (N0.13trn) and 38.90 percent (N0.11trn) decrease in FX Forwards and FX Futures turnover respectively.

“CBN"

In the OTC FX Futures market, the near month contract1 (NGUSJUL27, 2022) expired and open positions with a total notional value (NV) of$0.20bn were settled. A far month (60M) contract, NGUSJUL28, 2027 was introduced at a Futures rate of $/N638.22, representing an increase of 0.89 percent ($/N5.62) in the Futures price relative to the Futures price ($/N632.60) of the previous far month contract (NGUSJUN30, 2027).

The total NV of open OTC FX Futures contracts as at July 29, 2022, stood at circa $3.76 billion representing a MoM decrease of 0.27 percent ($0.01bn) and a YoY decrease of 10.90 percent ($0.46bn) from its value as at June 30, 2022 and July 30, 2021, respectively.

“A review of market activities at the non-sovereign securities segment showed that the total value of corporate bonds listed on FMDQ Exchange in July 2022 was N116 billion representing a 205.26 percent (N78.00bn) MoM increase on the value listed in June 2022”

The total NV of OTC FX Futures contracts traded in July 2022 was $0.20 billion, representing a MoM decrease of 36.92 percent ($0.12bn) relative to the turnover reported for June 2022 ($0.32bn). In July 2022, OTC FX Futures market activity was concentrated within the 7–12M tenor range, which accounted for 55.59 percent ($0.11bn) of the total turnover and sixteen (16) of the twenty-four (24) deals conducted in the period under review. The NV of OTC FX Futures contracts traded across short-dated (0–12M) and long-dated (13–60M) contracts decreased by 35.24 percent ($0.09bn) and 42.82 percent ($0.03bn), to $0.16 billion and $0.04 billion, respectively. Average price of OTC FX Futures contracts and Deliverable Forwards in July 2022 increased MoM across all tenor buckets relative to June 2022.

The average price of OTC FX Futures contracts within the 55-60M tenor range recorded the highest increase in price (i.e., depreciation of Nigerian Naira against the US Dollar) in July 2022. Similarly, the highest MoM increase in the price of Deliverable Forwards in July 2022 was recorded on the longest tenured contract (i.e. to 2M contract).

Primary Market
The DMO sold T.bills valued at N407.55bn across its fully subscribed auctions in July 2022, representing a 25.20% (N137.32bn) MoM decrease in T-bills sold across its auctions in June 2022 (N544.87bn).

Similarly, the DMO re opened two (2) 10Y and one(1) 20Y FGN Bonds issues in July 2022, selling FGN Bonds worth N123.84 billion (sub ceiling the total amount of FGN Bonds offered 1 by N101.16bn), representing a 45.23 percent (N102.28bn )MoM decrease relative to June 2022 (N226.12bn) for the same FGN Bond issues. However, the CBN did not auction OMO Bills in the primary market in July 2022, compared to N40.00 billion worth of OMO Bills sold in June 2022.

A review of market activities at the non-sovereign securities segment showed that the total value of corporate bonds listed on FMDQ Exchange in July 2022 was N116 billion representing a 205.26 percent (N78.00bn) MoM increase on the value listed in June 2022.

Corporate bond listings emanated solely from one issuer in the manufacturing sector.

Similarly, total value of CPs quoted on FMDQ Exchange in July 2022 was N21.16bn, representing a MoM decrease of 48.20 percent (N19.69bn) from the value of CPs quoted in June 2022.

Quoted CPs were issued by institutions from various sectors including Financial Services (3), Manufacturing(2), Chemical Supply & Oil Field Services(1), Health & Pharma (1)and Real Estate(1).