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Informist, Tuesday, Aug 13, 2024

By Anupreksha Jain

MUMBAI – Overnight indexed swap rates ended largely steady as traders remained cautious ahead of the key US economic data, dealers said. The one-year swap contract, however, ended lower following a fall in US treasury yields. 

The one-year swap rate ended at 6.53%, up from 6.57% on Monday. The five-year swap rate ended at 6.12%, compared with 6.13% the previous day. 

Receiving momentum on account of a fall in US Treasury yields subsided in the second half of the day as some onshore traders started to pay fixed rates ahead of the US producer price index inflation data, dealers said. 

The offshore flows, which used to be robust, have dwindled in the past two to three days, they said.

The sharp fall in India's CPI inflation for July did not have much impact on swap rates, dealers said. Data released Monday showed that India's annual CPI inflation rate fell to a near five-year low of 3.54% in July from 5.08% in June, mainly on account of a statistical effect of a high base. Although the headline inflation print was lower than expected, it has not changed the domestic rate cut expectations, dealers said. A rate cut by the Reserve Bank of India's Monetary Policy Committee by February is fully priced in, though a segment of the market expects a possible rate cut in December, they said.

However, the lower-than-expected CPI print led to some receiving momentum in the swap contracts maturing in less than a year, dealers said. 

"This (July) print was a one-off data point, and we need to see if it is sustainable, especially after September when the effect of a high base will not be there," a dealer at a primary dealership said. "Till the US CPI data, the movement will be range bound only." 

Offshore traders were more cautious about upcoming macroeconomic data in the US with PPI inflation data for July scheduled at 1800 IST and US CPI data for July on Wednesday.

"The market was quite dull today as there are absolutely no cues in the market on the domestic front," a dealer at a private bank said. "Activity of offshore traders was limited today as they awaited the US PPI data."

Ahead of the crucial data, the overnight fall in US Treasury yields had little impact on domestic swaps by the end of the day, dealers said. The yield on the 10-year benchmark fell to 3.91% from 3.96% at the time the Indian market closed on Monday. The odds are almost equal on the US Federal Open Market Committee cutting the policy interest rate by 25 and 50 basis points in September, according to the CME Fedwatch tool.

OUTLOOK

On Wednesday, swap rates may take cues from the US producer price index inflation data, scheduled to be released at 1800 IST. Traders may remain on the sidelines ahead of US July CPI data on Wednesday.

The data points are likely to give a clearer picture of the trajectory of rate cuts in the world's largest economy, dealers said. As per the estimate of a poll conducted by Reuters, the US CPI report is expected to show headline inflation accelerated 0.2% on month in July but remained unchanged at 3% on a year-on-year basis.

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

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

Edited by Saji George Titus

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