Nigeria: Fixed income turnover to further depress as liquidity stiffens

CBN resisted pressure to float the Naira – Spokesman
United Bank for Africa

Experts have projected sustained low activity in high yielding fixed income investment instruments as financial institutions save funds to take position in the forex market via the Central Bank of Nigeria (CBN) new window.

It would be recall that fixed income and currency market recorded decline in turnover at the close of trade last week, March 03, 2017, a trend a cross section of market analysts have said would prevail through this week.

Total turnover of fixed income and currency market declined by -40 per cent during last week, compared with preceding week ( w/w) largely due to the decrease in total Treasury bill (T-bill) which declined during the week by -66 per cent w/w .

Meanwhile, based on its attractive yields, OTC activity remained largely tilted towards T-bills which accounted for 41.4 per cent of total OTC turnover last week.

Trend of fixed instrument and money market last week which has spiraled into the week, showed that repurchase (Repo) agreements/buy – back, represented 30 per cent of total turnover last week, against 18 per cent in the prior week.

A repurchase agreement, or repo for short, is a type of short-term loan much used in the money markets, whereby the seller of a security agrees to buy it back at a specified price and time. The seller pays an interest rate, called the repo rate, when buying back the securities.

The increase in repo, last week and expected increase this week, analysts fingered to pressure on the Naira as banks continue to manage liquidity to partake in CBN’s FX Forward auctions.

Compared to the prior week, total turnover in the FX market last week dropped by 38 per cent w/w, due to the -88 per cent w/w decrease in FX Futures transactions between Member -CBN.

Also, the 77 per cent w/w decrease in FX futures turnover between Members –Client may not be unconnected with participation in CBN’s FX forwards auctions which continues to mount pressure on the naira.

Analysts expressed concern that the decline FX spot turnover in all three groupings last week, which may re-occur this week, points to continued difficulties in accessing FX many businesses and institutional investors.