More Stories

Informist, Thursday, Aug 8, 2024

By Siddhi Chauhan

MUMBAI – Overnight indexed swap rates ended on a mixed note today. The one-year swap rates witnessed traders paying fixed rates as the Reserve Bank of India in its Monetary Policy meeting retained its stance of 'withdrawal of accomodation' instead of softening it, dealers said. Meanwhile, the five-year swap rate ended slightly lower. 

The one-year swap rate ended at 6.53%, against 6.49% on Wednesday. The five-year swap rate ended at 6.09%, compared with 6.11% the previous working day.

At its three-day policy meeting, the rate-setting panel voted with a 4-2 majority to keep the policy repo rate unchanged at 6.50%. The committee also decided to maintain its stance of "withdrawal of accommodation" to ensure inflation progressively aligns with its target, while supporting growth. Before the policy, some segments of the market had firmly believed that the MPC would change its stance to "neutral".

As a result, after the MPC's decision to keep its stance unchanged, OIS rates on the one-year contract rose to the day's high of 6.55%. This happened as some domestic traders unwound their received fixed rate bets. With the disappointing policy result today, traders shifted their expectations for a change of stance to Oct from Aug.

"The market opened flatm but after the RBI's decision on the rates and stance, the rates started to rise," a dealer at a primary dealership said. "Also, many people were reversing their positions which they had placed earlier on expectations of stance change in this MPC."

Regardless, hopes of rate cuts by December persisted, as traders were confident India's rate-setting panel would have to cut rates following aggressive rate cuts expected by the US Federal Open Market Committee from September. The view came about after July jobs data last week showed the US unemployment rate rose to a near three-year high in July, which had also raised fears of a recession in the world's largest economy. Offshore investors have been consistently receiving fixed rates this week, and continued to do so despite the policy outcome, dealers said.  While the chances of surprise rate cuts have fallen, 70.5% of Fed fund traders expect a 50-basis-point rate cut in the US Federal Open Market Committee meeting in September against 22% a week ago, according to the CME FedWatch tool.

The five-year swap rate ended a tad lower after rising to the day's high of 6.15%. This happened as offshore traders received fixed rates on the back of a fall in US Treasury yields, dealers said. The yield on the 10-year benchmark US Treasury note was at 3.92% at the Indian market close, after rising to 3.97% earlier in the day.

The yields on the US Treasury note fell on caution of the US unemployment insurance claims report which was released after market hours today. The US jobless claims were expected to be at 240,000 in the week ended Saturday, after rising to 249,000 in the week before, according to a poll by Dow Jones. US government data showed that jobless claims fell to 233,000 for the week in question, suggesting the US economy was not worsening as fast as some traders feared. 

"The receiving (of fixed rates) happened because of a fall in US Treasury yields," a dealer at a private bank said. "We have US data due today, so it seems that offshore traders are placing positions ahead of that."

OUTLOOK

On Friday, swap rates may open slightly higher as fears of a US recession and consequent sharp rate cuts eased after jobless claims for the week ended Saturday.

US initial jobless claims fell to 233,000 against 250,000 a week before. According to a poll by Dow Jones, the claims were expected to be 240,000 in the week ended Saturday.

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 6.43-6.63% and in the five-year segment at 6.00-6.25%.

End

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.