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Forex trading, T Bills, others hit N86.4trn in 6 months

…Hike by N19.1tr to 22.1% in one year
…As external reserves steady at $47.06bn
Foreign exchange transactions, Treasury bills, Money Market, including Repurchase Agreements, Buy-Backs and Unsecured Placements/Takings, FGN Bonds, other Bonds and Eurobonds traded for a period of six months have been put to a total value of N86.40 trillion, checks by The Daily Times revealed.

Total trading activities in T bills contributed the largest to overall turnover, accounting for 40.86 per cent of the market, while FX market transactions (Spot FX and FX Derivatives) accounted for 37.44 per cent whilst Repurchase Agreements (Repos)/Buy-Backs product categories (Repos/Buy-backs) accounted for 14.90 per cent, and Bonds and Unsecured Placements & Takings representing 6.62 per cent and 0.58 per cent respectively, of overall market.

However, the total closing traded figure as of first half 2018, represented an appreciable rate of 22.1 per cent or N19.1 trillion, while compared to N67.3 trillion recorded in the corresponding period in 2017.

The latest data obtained from FMDQ OTC platform showed that turnover in the Fixed Income and Currency (FIC) market for the month ended June 30, 2018 was N17.23 trillion, a 20.53 per cent (N2.93trn) based on Month –on -Month (MoM1) increase and a 36.49 (N4.61trn) Year on –Year (YoY2) increase on the turnover recorded in June 2017.

The Daily Times findings further showed that transactions in the Forex market alone stood at N28.36trillion during period considered.

However, it is worthy of note that the T.bills and Foreign Exchange (FX) segments jointly accounted for 79.35 per cent of total turnover in the FIC market in June, representing a marginal increase of 3.44 percentage points (ppts) from the 75.91 per cent recorded in May.

The forex market, which represents a platform where participants buy, sell, exchange and speculate on currencies are made up of banks, commercial companies, the Central Bank, investment management firms, hedge funds, and retail forex brokers and investors.

Analysing contribution to total FX turnover, The Daily Times observed that Inter-Member trades contributed 15.05 per cent to total FX turnover in June, a 4.01per cent increase from the 11.04 per cent contribution recorded in May, while Member-Client and Member- CBN trades both contributed 56.62 per cent and 28.28 per cent to total FX turnover in June, decreasing from 58.90 per cent and 30.06 per cent in May respectively.

But analysis of FX turnover by product type showed that turnover in FX Spot and Derivatives increased MoM in line with the trend in total FX turnover, with both increasing by 29.82 per cent and 46.60 per cent respectively.

Although, latest figure revealed that the FX market turnover recorded highest base on Month-on- Month (MoM) increase, growing by 34.50 per cent to N1.79 trillion, while Unsecured Placement/Takings turnover recorded the highest MoM decrease, falling by 42.54 per cent to N0.03 trillion.

Further breakdown of the figure indicated that total FX market turnover in June was $19.80 billion, a 34.04 per cent increase or$5.03 billion from $14.77 billion value recorded in May.

In fact, May and April figures were lower than N6.12 trillion ($18.67bn) traded in March, which was an increase of 44.59 per cent against N4.6 trillion ($5.76bn) values recorded in February ($12.92bn). In January, the FX market had traded $14.01billion, which was higher than $12.92

T-bills/FGN Bonds

It is very important to note that the increase recorded in turnover was driven mainly by 18.13 per cent to N1.02 trillion MoM increase in T.bills turnover, as it remained the major driver of liquidity in the FI market, accounting for 84.95 per cent of the total FI market turnover, albeit 1.15ppts lower than its contribution in May.

Consequently, total T.bills outstanding as at June 30, 2018 stood at N13.76 trillion, representing a 1.75 per cent or N0.24 trillion MoM decline, driven by a net redemption of T. bills in the month of June.

Conversely, total FGN Bonds outstanding increased marginally by 0.41 per cent N0.03 trillion MoM to close at N7.83trn, suggesting the FGN refinanced some of its short-term obligations with longer term FGN Bonds while increasing cash liquidity in the market.

T. bills within the 6-12 months maturity remained the most actively traded, accounting for 28.28 per cent of the total FI market turnover in June, despite decreasing from the 37.42% contribution reported in May.

Weighted average yields across the short, medium and long-term maturities on the sovereign yield curve increased by 0.72ppts, 0.03ppts and 0.16ppts respectively, leading to a flatter sovereign yield curve from its shape in May.

Yield spread between the 3-month T.bills and the 10-year FGN Bond increased by 3bps to close at a 132bps spread in June.

Turnover in the fixed income market generally, in the month under review, settled at N6.24 trillion, representing a 43.03 percent (N1.87trn) month-on-month increase. Transactions in the T-bills market accounted for 87.41% of the Fixed Income market, from 88.67 percent the previous month.

On the other hand, activities in the secured money market (Repos/Buy-Backs) settled at N3.51 trillion in June, 34.28 per cent (N0.89trn) more than the value recorded in May. On a year-on-year basis, turnover on repos/buy-backs recorded a 26.34 percent (N0.76trn) increase.

Nigeria’s external reserves monitored by the Central Bank of Nigeria (CBN) dropped a total sum of $719.46 million in 24 days to $47.06 billion as at August 2, from $47. 78 billion it stood at June 29, 2018.

However, the continued decline in foreign reserves was due to sustained intervention in the foreign exchange market by the apex bank.

Foreign reserves have dropped month-to-date by $508.41 million from $47.79 billion it opened July 2018 to $47.26 billion, despite the absence of the CBN’s conventional injection into the foreign exchange market.

The foreign reserves have been hovering around $47 billion since April 17, 2018 and reached the peak of about $47.85 billion on May 9, 2018.

The global oil prices also have been hovering around $73 per barrel, stoking hopes in the industry that the market has finally turned a corner following a three-year slump.

The naira buffer has come under heavy pressure, forcing the CBN to woo local businesses importing goods from China to use the Yuan instead of the Dollar in its effort to support the naira and boost reserves.

The apex bank explained that the currency swap is aimed at providing adequate local currency liquidity to Nigerian and Chinese industrialists and other businesses thereby reducing the difficulties encountered in the search for third currencies.

The CBN governor, Mr. Godwin Emefiele, at the end of the last Monetary Policy Meeting (MPC), said the committee members were optimistic and expected further increases in the level of foreign reserves in the near term, citing the favourable crude oil prices.

“The Committee, therefore, advised the Bank to sustain its current efforts to maintain investor confidence and ensure accretion to external reserves,” he said in a communiqué.

Commenting on the issue, analysts at Cordros Capital said: “Our outlook for the Foreign Exchange market remains stable, as higher oil prices and stable production continue to support growth in the foreign reserves, providing the apex bank sufficient legroom to sustain its interventions in the currency space.”

It is however worthy of note that during the period under review, the Central Bank of Nigeria (CBN) had moved closer to realising its single exchange rate target by unifying dollar buying rates for banks and Bureau de Change (BDC) operators.

The development, which has brought stability to the foreign exchange market and showed CBN’s proactive approach to ending multiple exchange rates, tipped to permanently send currency speculators out of the market.

The President, Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, said: “We believed the CBN’s policy direction and the BDCs’/Banks’ rate unification promotes efficiency, transparency, price discovery and will help phase-out multiple exchange rates regime.”

The Daily Times recalls that the CBN during the period under review finally announced that Bureau De Change (BDC) operators and commercial banks will buy dollar at same rate and sell within same margin, as market watchers saw it as a masterstroke needed to eliminate multiple exchange rates in the industry.

But many financial pundits believe the rate unification also captured CBN’s commitment and readiness to end the multiple exchange rates that have remained a plague to the industry, and in its place, entrench single exchange rate regime that serves the interest of all stakeholders.

Speaking further on this development, the ABCON boss, Alhaji Gwadabe, said the speed at which the naira recovered against the dollar after the CBN’s announcement, buttressed the BDCs’ massive influence in the market and economy.

He said the BDCs have so far stamped their role as key players in the forex market, where they remain major economic drivers creating employment and wealth for the people. These contributions, he said, require that the operations of BDCs be supported to sustain ongoing market rally and stability.

“We commend the CBN’s bold move in unifying the BDCs’, banks’ rates. We can safely say that the threat of distortions of market rate by election anxiety have been mitigated by the policy. And the BDCs are committed to supporting the CBN’s policy direction and actions to sustain ongoing market stability.

“The impact of the rate unification is massive, including raising foreign investors’ confidence in the domestic economy, boosting the foreign exchange reserves position and creating opportunity for a better foreign reserve management by the apex bank.

He assured that the BDCs will continue to meet the critical forex needs of the retail end-users and stick to allowable transactions limits as approved by the regulator”, he added.

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