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Informist, Friday, Jul 26, 2024

By Anupreksha Jain

MUMBAI – Overnight indexed swap rates ended higher today as traders paid fixed rates following an uptick in US Treasury yields, dealers said. During the day, the yield on the 10-year benchmark US Treasury note rose to a day's high of 4.27% against 4.23% at the time the Indian market closed on Thursday.

The one-year swap rate ended at 6.70%, against 6.68% on Thursday. The five-year swap rate ended at 6.26%, compared with 6.22% on the previous trading day.

"US yields went up, so (swap rates) went up," a dealer at a private bank said. "Traders have reversed their positions, leading to a slowdown in the receiving momentum." US Treasury yields rose ahead of the personal income and outlays for June due at 1800 IST.

Traders remained cautious ahead of the US Personal Consumption Expenditures Price Index data, dealers said. According to Dow Jones, the Core Personal Consumption Expenditures Price Index, which is the US Federal Reserve's preferred inflation gauge, is expected to rise 2.6% on year and 0.2% on month. The headline Personal Consumption Expenditures Price Index is expected to rise 2.5% on year and 0.1% on month.

Meanwhile, investors digested the US GDP advance estimate for Apr-Jun and weekly jobless claims data. Data released after Indian market hours on Thursday showed US GDP in Apr-Jun grew at an annualised rate of 2.8%. Dow Jones had expected the GDP to rise 2.1%.

However, some said today's movement was purely a correction in the swap rates, as, for the last 2-3 days, the market saw robust receiving momentum. "I do not think that for today's movement there was any fundamental reason," a dealer at a primary dealership said. "We can say that US yields were up or maybe offshore traders paid fixed bets, but there is no concrete reason."

In the last few days, traders received fixed bets on rising rate cut bets both in the US and in India, dealers said. The odds of a 25-basis-point cut in the interest rate by September in the US have risen to 100% from 96% a day ago, according to the CME Fedwatch tool.

On the domestic front, the one-year swap rate factors in a 25 bps rate cut in February, dealers said. Moreover, traders are increasingly taking bets that the Monetary Policy Committee could change its policy stance to 'neutral' from 'withdrawal of accommodation' by October and cut the policy repo rate, currently at 6.50%, by December, dealers said.

Traders now keenly await the upcoming US Federal Open Market Committee meeting, scheduled for Tue-Wed, dealers said. The meeting is likely to provide fresh guidance to the market on the rate-cut trajectory in the US, dealers said.

OUTLOOK

Swaps are not traded on Saturday. On Monday, swap rates will take cues from the US personal consumption expenditures data for June, scheduled to be released at 1800 IST. According to Dow Jones, the US Core Personal Consumption Expenditures Price Index, the Fed's preferred inflation gauge, is expected to rise 2.6% on year and 0.2% on month. The headline Personal Consumption Expenditures Price Index is expected to rise 2.5% on year and 0.1% on month.

During the day, swap rates may trade in a narrow range as traders are likely to remain cautious ahead of the FOMC meeting later in the week.

Any sharp movement in US Treasury yields and crude oil prices may also lend cues at the opening. The swap rate in the one-year segment is seen at 6.60-6.80% and in the five-year segment at 6.20-6.35%.

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Rajeev Pai

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