Fixed income, currencies trading drop by 27.34% in August — FMDQ

By Kayode Tokede

FMDQ Exchange on Monday disclosed that turnover in the Fixed Income and Currencies (FIC) markets in August 2021 was N12.33trillion, representing a 27.34per cent or N4.64trillion Month-on-Month (MoM) decrease from turnover reported in July 2021.

According to the latest report by FMDQ, FIC market in its Year-on-Year performance also dropped by 13.53per cent or N1.93 trillion from August 2020 turnover.

The report disclosed that Foreign Exchange (FX) and Money Market transactions remained the highest drivers of turnover, jointly accounting for 67.44 per cent of the total FIC markets turnover in August 2021.

FMDQ stated that total FX market turnover in August 2021 was $9.13billion or N3.76trillion), representing a MoM decrease of 26.96 per cent or $3.37billion from $12.50billion turnover recorded in July 2021.

The report hinted that the MoM decrease in total FX market turnover was jointly driven by the 23.83per cent or $1.52billion and 30.21per cent or $1.85billion MoM decrease in FX Spot and FX Derivatives turnover respectively in August 2021.

According to the report, “The MoM decrease in FX Derivatives turnover was driven by MoM decrease in turnover across all product types: FX Swaps (-26.00per cent), FX Forwards (-18.20 per cent), FX Futures (-48.54 per cent) and Other Derivatives (-50.41 per cent).

“Consequently, the contribution of FX Derivatives to total FX market turnover decreased by 2.18 percentage points (“ppts”) to 46.87 per cent in August 2021

“In the OTC FX Futures market, the near month contract3 (NGUS AUG 25, 2021) expired and open positions with a total notional value (NV) of $0.52billion were settled. A far month (60M4) contract, NGUS AUG 26, 2026 was introduced at a Futures price of $/N614.32

“The total NV of open OTC FX Futures contracts as at August 31, 2021 stood at circa $3.86billion representing a MoM decrease of 8.53 per cent or $0.36billion from its value as at July 30, 2021.”

FMDQ also said Naira at FX Market depreciated against the Dollar, losing 0.03 per cent or $/N0.11 to close at an average of $/N411.49 in August 2021 from $/N411.38 recorded in July 2021.

Further, the Naira traded within a range of $/N410.80 – $/N412.00 in August 2021 compared to $/N410.38 – $/N411.75 recorded in July 2021.

The added that, “In the primary markets, average discount rates for the 91-day and 182- day T.bills6 remained flat at 2.50% and 3.50% respectively, whilst the average discount rate for 364-day T.bills declined by 1.36 ppts, to 7.08% in August 2021 from 8.44% recorded in July 2021.

“Similarly, the average discount rates for CBN OMO7 bills for comparable tenors8 remained flat at a range of 7.00% – 10.10% in August 2021.

“The 10Y9 , 20Y and 30Y FGN10 Bond issuances declined by an average of 0.87ppts to close at a range of 11.60% – 12.80% from 12.35% – 13.25% recorded in July 2021. Further, FGN Bonds were oversubscribed by 140.01% in August 2021 compared to 90.74% in July 2021.”

According to the report, in August 2021, FGN Bonds remained the highest contributor to FI market turnover, despite the MoM decrease in its turnover by 28.35% (N0.55trillion) and resulting in a decrease in FGN Bonds trading intensity by 4bps to 0.12 from 0.16 in July 2021.

“Similarly, turnover across other fixed income products such as OMO bills, T.bills, CBN Special Bills and Others* also decreased MoM in August 2021.

“In August 2021, 3M – 6M tenor T.bills were the most traded sovereign debt securities, accounting for 29.23% (N0.76trillion) of the total sovereign fixed income market turnover, while FGN Bonds with term-to-maturity of 20Y or higher were the most actively traded longterm11 sovereign debt securities, accounting for 24.23% (N0.63trn) of the total sovereign fixed income market turnover.

“Yields decreased MoM across all tenors on the yield curve in August 2021 by an average of 0.86ppts. However, the yield spread between the 3M and 30Y sovereign debt securities increased by 0.33ppts to 9.61ppts in August 2021, indicating a slight steepening of the sovereign yield curve.  Real (inflation-adjusted) yields remained negative across the yield curve in August 2021.”