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Informist, Friday, Aug 2, 2024

By Nishat Anjum

MUMBAI – Overnight indexed swap rates ended at six-month lows as traders received fixed rates, tracking a sharp fall in US Treasury yields, dealers said. Yield on the benchmark 10-year US Treasury note slumped following softer-than-expected economic data from the US on Thursday, strengthening hopes of a rate cut by the US Federal Reserve in September.

The one-year swap rate ended at 6.62%, against 6.65% on Thursday, the lowest closing level since Feb 7. The five-year swap rate ended at 6.15%, compared with 6.21% on the previous trading day, the lowest since Feb 2.

As the bets on a rate cut in the US in the next meeting firm up, traders increasingly bet on a rate cut by the Reserve Bank of India's Monetary Policy Committee meeting in the December policy review, dealers said. Currently, the one-year swap rate factors in a rate cut by December, as against February, which it indicated a few weeks ago, they added.

Some dealers said the domestic rate-setting panel may change the stance to 'neutral' from 'withdrawal of accomodation' in the October policy. "I think there would be some indication in policy, if not an actual change in the stance," a dealer at a private bank said. "The (rate) cycle is about to change. Hence, volumes pick up." 

Meanwhile, the yield on the 10-year benchmark US Treasury note fell to 3.94% from 4.05% at the time the Indian market closed on Thursday, as latest data suggested that the US economy might be slowing down faster than most market participants had expected. A day before the release of this data, the US Federal Open Market Committee kept its benchmark interest rate steady at 5.25-5.50%, with Federal Reserve Chair Jerome Powell indicating that a rate cut in September was on the table, provided inflation cooled down. 

In the data released on Thursday, the US showed manufacturing activity in the world's largest economy fell to an eight-month low in July. The Institute for Supply Management's manufacturing purchasing managers index fell to 46.8 last month from 48.5 in June. A poll of economists by Reuters had forecast the purchasing managers index to rise to 48.8. A reading below 50 suggests that the sector is in contraction, while a reading above it shows expansion.

Moreover, weekly jobless claims in the US rose to an 11-month-high. Initial claims for state unemployment rose 14,000 to a seasonally adjusted figure of 249,000 in the week ended Saturday, more than the forecast of 236,000 claims in a Reuters poll of economists. 

Some traders also unwound their paid bets, given the positive sentiment around rate cuts, both in the US and India, dealers said. "These bets are not fresh receiving bets, but those who had paid fixed rates earlier are unwinding their bets," a dealer at a primary dealership said. "I think that a December rate cut is very much a possibility."

OUTLOOK

Swaps are not traded on Saturdays. On Monday, swap rates may open steady amid a lack of fresh domestic cues regarding interest rates, dealers said. Swaps may take cues from US non-farm payroll data for July, scheduled to be released at 1800 IST. According to Dow Jones, economists estimate 185,000 new workers were hired in July, lower than the former addition of 206,000.

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 6.55-6.80% and in the five-year segment at 6.15-6.30%.

End

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

Edited by Manisha Baxla

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