More Stories

Informist, Monday, Jul 29, 2024

By M.C. Adhiinthran

MUMBAI – Overnight indexed swap rates ended lower today, tracking the fall in US Treasury yields, dealers said. The US yields fell as the personal consumption expenditures price index data for June, released on Friday, reaffirmed bets of a 100% chance of a rate cut in the US by September. 

The one-year swap rate ended at 6.68%, against 6.70% on Friday. The five-year swap rate ended at 6.24%, compared with 6.26% on the previous trading day.

"US yields are the main driving cue for today," a dealer at a primary dealership said. "But it is a little boring compared to the G-Sec (government securities) market where all the action is." 

The yield on the 10-year benchmark US Treasury note fell to 4.17% from 4.24% at the time the Indian market closed on Friday. The US Treasury yields fell after the data on personal consumption expenditures price index for June. The personal consumption expenditures price index rose 0.1% last month after being unchanged in May. 

The increase in PCE inflation was in line with economists' expectations. In the 12 months through June, personal consumption expenditures inflation advanced 2.5%, a tad lower than 2.6% in May. Core inflation saw a 2.6% rise on an annualised basis, similar to the previous month. CME FedWatch Tool showed Fed Fund Futures had full certainty that interest rates in the US would be cut by September. The Federal Funds rate is currently 5.25-5.50%. 

Meanwhile, back home, the one-year swap rate, which reflects the interest rate trajectory expectations, still factored in a 25-basis-point rate cut by February, dealers said. 

"The one-year swap rate has to fall to 6.60% or lower to show rate cuts in India by December," a dealer at a primary dealership said. "I don't think we will fall that far, because people will start paying even before we get there. A February rate cut is almost a given now, so people would trade within a range accommodating that in mind." 

The sharp rise in liquidity in the banking system aided short-term swap rates, dealers said. The liquidity rose to a surplus of over 1 trln rupees due to strong government spending. According to data from the Reserve Bank of India, the liquidity surplus was at 1.15 trln rupees on Sunday.  

Subsequently, the Overnight Mumbai Interbank Offered Rate, or MIBOR, which is the floating leg of the OIS contracts, fell to 6.55% today, from an average rate of 6.69% over the previous week. 

OUTLOOK

On Tuesday, swap rates may open steady due to a lack of firm cues for the day, dealers said. Traders are likely to maintain caution ahead of the US Federal Open Market Committee meeting later in the week.

Traders also await Bank of Japan's policy review later this week, where they expect the central bank to hike interest rates in the coming meeting.  

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

Edited by Vandana Hingorani

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.