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Informist, Tuesday, Aug 20, 2024

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates ended little changed for the second straight day. Volumes in short-term swap rates edged up slightly from the previous day, but trade was lacklustre due to lack of fresh triggers on interest rates, dealers said.

The one-year swap rate ended at 6.53%, the same as on Monday. The five-year swap rate ended at 6.11%, against 6.12% the previous trading day.

Some traders received fixed rates in early trade, but the momentum was short-lived as there was no change in the view on rate cuts, dealers said. OIS rates have already factored in the US Federal Open Market Committee cutting the Fed funds target range starting November, in line with Fed funds futures, they said. According to the CME FedWatch tool, expectations of a larger 50-basis-point cut have remained steady this week at 26.5%.

Offshore activity, particularly in swap contracts maturing in two years or more, has died down, dealers said. Traders around the world are waiting for the minutes of the US Federal Open Market Committee's July meeting at 2330 IST on Wednesday and US Federal Reserve Chair Jerome Powell's speech at the Jackson Hole Economic Symposium on Friday for insight into the interest rate trajectory in the world's largest economy.

"The global picture is such that everything is calm," a dealer at a foreign bank said. "US yields are not moving and everyone is waiting for Jackson Hole to change something."

In India, a change in the six-member Monetary Policy Committee scheduled by its next meeting in October may also limit the impact of minutes due Thursday. External members Jayanth Varma, Ashima Goyal and Shashanka Bhide are due to be replaced in the interim. Varma and Goyal have been the only members of the MPC to vote for rate cuts, during the panel's current extended rate pause that has stretched to nine consecutive policy meetings.

Comments from the three members of the RBI, who are scheduled to participate in the October meeting, will be watched to see if they acknowledge risks to growth that may bring forward rate cuts. A cut in India's repo rate of 6.50% is likely to begin by December or February, provided the US rate cuts begin in earnest, dealers said.

The notional trade volume in the two-month OIS spiked to over 10 bln rupees today. There was no interest rate view to be expressed, but likely a corporate house hedging its underlying fixed rate exposure for a short duration, dealers said.

"It is a flow-based pattern, somebody has to hedge and has found a counterparty without the OIS rates going anywhere," a dealer at a primary dealership said.

OUTLOOK

Swap rates may open steady on Wednesday as traders remain cautious ahead of potentially significant cues on the interest rate view, dealers said. These include minutes from the latest US and India monetary policy reviews, as well as the Jackson Hole Economic Symposium in the US that starts Thursday.

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 Ashish Shirke

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