More Stories

Informist, Thursday, Aug 1, 2024

By Anupreksha Jain

MUMBAI – Overnight indexed swap rates ended off lows as traders' receiving fixed rate trades dried down towards the end of the day, dealers said. During the day, there was robust momentum pulling yields lower in the market as offshore traders received fixed rates after a sharp fall in US Treasury yields.

The one-year swap rate ended at 6.65%, against 6.67% on Wednesday. The five-year swap rate ended at 6.21%, compared with 6.22% on the previous trading day. At the day's low of 6.18%, the five-year swap rate fell to its lowest since Feb 8.

The yield on the 10-year benchmark US Treasury note fell to 4.06% at the close of Indian market hours today, against 4.14 on Wednesday. Offshore traders who paid fixed rates earlier were seen covering their bets in early trade, dealers said. Moreover, domestic traders remained on the sidelines as these levels were not lucrative enough for them to place a bet, though some of them paid fixed rates in the five-year swap when it was at the day's lows. The five-year swap had over 100 bln rupees of notional traded volumes on the Clearing Corp of India's 'ASTROID' platform for only the seventh time in 2024-25 (Apr-Mar).

"See, the market was already expecting the tone of the US Federal Reserve to be on the softer side," a dealer at a primary dealership said. "So, it just opened lower and then rates largely moved in a narrow range."

Even before Wednesday's rate decision, investors had started expecting the Fed cutting rates in September, with the CME FedWatch tool showing Fed funds futures traders seeing a 100% chance of a rate cut at its next meeting. US yields fell after US Federal Reserve Chair Jerome Powell at the Federal Open Market Committee's meeting indicated high odds of a rate cut in September if inflation data shows price growth slowing in the economy.

The US Federal Open Market Committee kept the federal funds target rate unchanged at 5.25-5.50% for the eighth straight meeting. The US rate-setting panel adopted a softer tone in its policy statement, noting some further progress on inflation falling to its 2% target. In addition, it also cited risks to both sides of its dual mandate on inflation and maximum employment. This is a departure from earlier statements, when it only cited risks to inflation.

"Fed was dovish, Powell has indicated that the September rate cut is quite a possibility," a dealer at a private bank said. "The September rate cut is a done deal, but it will not translate into an immediate cut in domestic rates. We will have a shallow rate cut cycle."

In June, US personal consumption expenditures index, the Fed's preferred inflation gauge, rose 2.5% on-year and 0.1% on-month. However, the rate-setting panel said it does not see it appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.

OUTLOOK

On Friday, swap rates may open steady amid a lack of firm domestic cues. Swaps may take cues from weekly US unemployment claims data and the US July manufacturing purchasers manager index, dealers said. The data points are important as investors seek reassurance on rate cuts in the US by September, which are fully priced in.

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 Tanima Banerjee

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.