The Fixed Income Market Overview
Yields in the fixed income market in 2020 took a downward trajectory, they were on an all-time low, this was majorly driven by a flight to safety by investors as a result of the pandemic-induced economy which created uncertainties and volatility.
The total turnover of the fixed income and FX market was choppy from the beginning of the year as global economic shortfalls had a severe impact on the market. The market started to record a decline in April responding to the global and domestic economic crisis. As economies began to open up gradually, the market has also recorded a slight increase in its activities between June and July, however, the uptick was not sustained, and not as high as what was recorded at the beginning of the year. However, the severe impact of the macroeconomic challenges followed by uncertainty also continued to trail the market negatively.
The total turnover of the fixed income and currency market was N195.42trn between January-November 2020, March 2020 recorded the highest turnover between January - November 2020 with N25.66trn, while May 2020 recorded the lowest market turnover during the same period (see chart 3 below).
The OMO bill was the highest contributor to the total turnover of the market between January - November 2020, next were the foreign exchange transactions then the money market transactions which include the Repurchase Agreement (Repos) and Unsecured placements/Taking. Treasury bills transaction contributed the least to the total turnover of the market during the period under review
Chart 4: Fixed Income and Currency Market Turnover 2020 (N'trn)
Source: FMDQ, Proshare Research
Corporate bonds and government institutions also took advantage of the low yield environment to refinance debts and business expansion. Corporate institutions like Dangote, MTN Nigeria, Nigerian Breweries, and several others were able to raise over N400bn in Commercial Papers and there is still headroom for improvement as raising funds in the debt market has shown to be a lot cheaper than loans from banks. Out of the corporate bond issuances issued in 2020 was the issuance Dangote Cement N300bn bond program, the Company was able to raise N100bn in Series 1. The bond which was oversubscribed by over 50% is the largest corporate bond issued in the Nigerian Capital Market.
Also, 2020 saw State Governments coming into the debt market to raise funds to finance the infrastructural project. Lagos and Ondo State Governments issued N100bn and N14.8bn respectively to finance social projects.
The FGN Bond recorded declines in marginal rates at the primary auction market, average rates across all tenors for 2020 was 9.38% which is lower than the 14.05% recorded in 2019 (see table 1 below).
The oversubscription trend was also seen in the bonds market; however, long-term instruments were oversubscribed more than the short-term and mid-term instruments. At the secondary market, bond yields fell below 1% in Q4 2020. Also, bonds issued in December were revised downward before its issue, and the amount allotted was lower than what was offered.
For the FGN Savings Bond, the offer for subscription was suspended during the peak periods of the pandemic, this could be as a result of a decline in disposable income of individuals, and the government does not want to put a strain on the low incomes of its citizens. Offering savings bond auction during the peak of the pandemic would have been counterproductive as the government was also involved with Quantitative Easing during the period.
Inflation-adjusted yields across all tenors of Treasury bills and government bonds have remained negative.
Table 65: FGN Bond Coupon Rates in 2020
Downloadable PDF - The 2020 Nigerian Capital Market Report
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