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Informist, Friday, Aug 16, 2024

By Anupreksha Jain

MUMBAI – Overnight indexed swap rates ended higher following a rise in US Treasury yields after strong jobless claims data, dealers said. Towards the end of the day, the paying momentum across tenures subsided as US yields eased a bit, prompting onshore traders to trim their paid positions.

The one-year swap rate ended at 6.53%, against 6.52% Wednesday. The five-year swap rate ended at 6.11%, compared with the previous close of 6.08%. Money markets were closed Thursday for Independence Day.

During the day, the one-year and five-year rates inched up to 6.56% and 6.13%, respectively, due to paying pressure spurred by a rise in US bond yields Wednesday. The yield on the 10-year benchmark US Treasury note climbed to 3.91% from 3.85% at the time the Indian market closed Wednesday after strong data prints on jobless claims and consumer confidence weakened the case for large rate cuts by the US Federal Reserve.

Following the data, the odds of the US central bank slashing interest rates by 50 basis points at its September policy meeting fell to 27.5% compared with 42% before the data. Odds of a 25-bps rate cut in September now have a 72.5% probability, as per the CME FedWatch Tool.

During the day, the yield on the 10-year benchmark US Treasury note eased to the day's low of 3.88% after rising to 3.93% earlier in the day.

After robust offshore flows on the previous trading day, momentum was missing from the market today, dealers said. During the day, swap rates moved mostly in a narrow range in the absence of fresh cues on domestic policy rates, they said.

Domestic players have a divided view on the likely rate-cut trajectory of the Monetary Policy Committee. A segment is of the view that the rate-setting panel may cut the policy rate in February, while some expect a rate cut in December, dealers said. Despite the lower-than-expected domestic headline inflation print for July, traders were of the view that it would take several months for headline inflation to align durably with the RBI's target of 4%.

At the same time, US CPI data for July failed to lend fresh cues on the likely rate-cut trajectory in the world's largest economy, dealers said. The US CPI data was largely in line with expectations. Core CPI inflation rose 0.2% on month and 3.2% on year, again in line with expectations, while the headline inflation was up 2.9% on an annual basis, slightly lower than the expected 3.0%.

"US (US yields) drifted downwards, so we drifted," a dealer at a primary dealership said. "But rates will remain in these ranges as everything has been priced in the market and there is no crucial data lined up which can change those expectations."

OUTLOOK

Swaps are not traded Saturday. On Monday, they may take cues from US state employment and unemployment data, scheduled to be released at 1930 IST today. The preliminary data of the University of Michigan Survey of Consumers for August are also likely to lend cues to the market. 

Traders will now look forward to comments from Fed officials in the coming weeks to gauge their view on the economy and interest rates. The Federal Reserve Bank of Chicago President Austan Goolsbee is scheduled to deliver a speech at 2255 IST.

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 Rajeev Pai

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