Turnover in fixed income market soars on high yields as investors inject N59trn in November
Bamidele Famoofo
Investment in the fixed income and currency market maintained a bullish run in 2024 with transactions in the twilight of the year (November) recording a 111.8 per cent growth year on year (N31.16trn) higher than the turnover in November 2023.
On month on month basis, investments in the secondary market of the FIC market remained favourable with a 43.18 per cent increase, representing N17.80 trillion above the turnover recorded in October 2023.
Data gleaned from the FMDQ Exchange platform showed that Foreign Exchange (FX) and Money Market (MM) transactions dominated secondary market activity, jointly accounting for 69.59 per cent of the total secondary market turnover in November 2024.
Soaring inflation and several other economic headwinds affecting businesses have negatively impacted economic performance recently in Africa’s most populous nation. Consequently, investors are seeking the relative safety of fixed-income securities, which offer more predictable returns.
Fixed-income instruments such as government bonds, corporate bonds, and treasury bills have become attractive alternatives. Government bonds, for instance, offer higher yields due to the increased Monetary Policy Rate. These options have provided a haven for investors against the backdrop of rising inflation and volatile equity markets.
Nigeria’s base lending rate also known as the Monetary Policy Rate (MPR) stands at 27.5 per cent while headline inflation as of November is 34.6 per cent.
This surge in trading volume in fixed income instruments came as the Nigerian naira continued its downward trend against the US dollar, with the spot exchange rate averaging N1,667.41/$, reflecting a 2.14 per cent depreciation from the previous month’s rate of N1,631.71/$.
The naira traded within a range of N1, 639.50/$ to N1, 690.37/$ during the month, highlighting the ongoing pressures faced by the currency in the foreign exchange market.
According to the FMDQ Exchange Financial Markets monthly report for November 2024, the federal government has raised about N18 trillion from bonds and Treasury bills.
The report showed that fixed income market turnover in November 2024 was N17.95 trillion, representing a MoM increase of 79.47 per cent (N7.95trn) from the turnover recorded in October 2024 (N10.00trn).
The MoM increase in turnover was driven by the increase in T.bills, Other Bonds, OMO Bills, and FGN Bonds transactions during the review period. In November 2024, the trading intensity (TI) for T.bills and FGN Bonds increased MoM by 0.13bps and 0.01bps to 0.38 and to 0.08 T.bills with term-to-maturity (TTM) between >6M – 12M and FGN Bonds with TTM between >5Y – 10Y were the most traded sovereign FI securities, accounting for 39.22% (N2.72trn) and 17.19% (N1.19trn) of the secondary market turnover for sovereign FI securities in the spot market, respectively.
The sovereign yield curve experienced a 4.49ppts MoM decrease in yield spread 1 to -8.58ppts in November 2024, depicting a bearish flattening of the yield curve.
In November 2024, one (1)-year real (inflation-adjusted) yields in Nigeria and Turkey were negative at (-11.08%) and (-5.68%), respectively compared to selected emerging markets.
The DMO sold T-bills valued at N693.05 billion across its auctions in November 2024, representing a 51.79 per cent (N236.48bn) MoM increase in the value of T-bills sold across its auctions in October 2024 (N456.57bn).
The DMO sold FGN Bonds worth N346.16 billion in November 2024. This represents a 19.53 per cent (N56.56bn) MoM increase on the amount sold in October 2024 (N289.60bn).
Sovereign securities offered by the DMO in its FGN Bond and T-bills auctions were oversubscribed by 207.99 per cent and 92.73 per cent, respectively, during the review period.
In November 2024, the CBN sold OMO Bills worth N905.23 billion, representing a 23.81 per cent (N174.09bn) uptick on the amount sold in October 2024 (N731.14bn).
Primary Market (Non-Sovereign Securities)
In November 2024, there were no new listings or redemptions of Non-Sovereign Bonds on the FMDQ Exchange, leaving the total value of Non-Sovereign Bonds outstanding at about N2.24 trillion.
The total value of CPs quoted on the FMDQ Exchange in November 2024 was N77.50 billion, representing a MoM increase of 153.44 per cent (N46.92bn) in the value of CPs quoted in October 2024 (N30.58bn). In November 2024, quoted CPs were issued by institutions from the Financial Services (8), Agriculture (4), Manufacturing (3), Health & Pharma (2), and Real Estate (2) sectors.
The outstanding value of CPs declined by 7.02 per cent MoM (N39.71bn), settling at N525.57
billion in November 2024. This decrease was primarily driven by the maturity of N117.21 billion worth of CPs during the review period.
Spot Market
Total spot market turnover for all products traded in the secondary market in October 2024 was N58.22 trillion, representing a MoM increase of 58.42 per cent (N21.47trn) from October 2024 figures.
The MoM increase in total spot market turnover was driven by the increase across the FX, MM, and FI turnover by 46.39 per cent (N7.59trn), 57.11 per cent (N5.93trn), and 79.47 per cent (N7.95trn), respectively.
The increase in MM turnover was driven solely by the MoM increase in the Repos/Buy-backs product category. The increase in FI turnover was driven by the MoM increase across the T.bills, OMO Bills, Other Bonds, and FGN Bonds product categories, whilst CBN Special Bills remained inactive.
Spot FX Market
Spot FX market turnover was $14.39 billion (N23.95trn) in November 2024, representing a 42.69 per cent ($4.30bn) MoM increase from the turnover recorded in October 2024 ($10.08bn). In the FX Market, the Naira depreciated against the US Dollar, with the spot exchange rate ($/N) increasing by 2.14 per cent ($/N35.70) to close at an average of $/N1,667.41 in November 2024 from $/N 1,631.71 recorded in October 2024. Further, exchange rate volatility decreased in November 2024, with the Naira trading within a narrower exchange rate range of $/N1,639.50 – $/N1,690.37 compared to $/N1,552.92 – $/N1,675.49 recorded in October 2024.
Total turnover in the MM segment increased MoM by 57.11 per cent (N5.93trn) to N16.32 trillion in November 2024. The MoM increase was driven by the 57.51 per cent (N5.96trn) increase in Repos/Buy-backs. The average O/N rate and OPR rate (secured lending rate) decreased MoM by 0.98ppts and 1.16ppts, respectively, to close at an average of 30.02% and 29.43 per cent in November 2024.
Derivatives Market
Total turnover in the FX derivatives segment in November 2024 was $0.49bn (N0.81trn), representing a MoM decrease of 82.41% ($2.27bn) from October 2024 figures ($2.76bn). The MoM decrease in the FX derivatives turnover was driven by the 85.52 per cent ($2.22bn), and 34.06 per cent ($0.06bn) decline in FX Swaps and FX Forwards transactions, respectively during the review period.
Cleared Naira-Settled Non-Deliverable Forwards
In the Cleared Naira-Settled (USD/NGN) Non-Deliverable Forwards market, the near month contract (NGUS NOV 27, 2024) expired and open positions with a total notional value (NV) of $0.02bn were settled. No new month (60M) contract2 was introduced in the Cleared Naira- Settled Non-Deliverable Forwards market in the review period, continuing the trend since August 2023. Consequently, the TTM of the farthest open contract is forty-five (45) months (i.e., NGUS AUG 30, 2028 contract). As a result, the cumulative NV of open Cleared Naira-Settled Non- Non-Deliverable Forwards contracts decreased slightly to $0.09bn as of November 29, 2024, representing a MoM and YoY decrease of 14.86% ($0.02bn) and 97.51% ($3.46bn), respectively.
The average modelled rates for the 13M-33M Naira-Settled Exchange-Traded FX Futures contracts in November 2024 were higher than those for October 2024 across all tenors. The indicative rates for short-term (i.e., ≤12M) Non-Deliverable FX Forwards contracts in November 2024 were higher than indicative rates for October 2024 across all tenors, excluding the 3M tenor which appreciated in November 2024.