More Stories

Informist, Wednesday, Aug 21, 2024

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates ended little changed today. The five-year swap rate has inched lower, tracking a fall in US Treasury yields, but traders paid fixed rates towards the end of the day.

The one-year swap rate ended at 6.53%, while the five-year swap rate closed at 6.11%. Both contracts closed at the same level as on Tuesday.

In Asian trade today, the yield on the 10-year benchmark US Treasury note fell to 3.81% from 3.87% at the time of Indian market close on Tuesday, and inched up to 3.82% by the end of Indian market hours. A fall in US yields widens the interest rate differential between haven assets and emerging market debt, making the latter more appealing to foreign investors.

US yields fell as expectations of a sharp interest rate cut in the country, starting September, increased, ahead of Federal Reserve Chair Jerome Powell's speech at the US central bank's Jackson Hole Economic Symposium on Friday. Further, the US Labor Department will release benchmark revisions to its employment data for the 12 months to March today. A significant downward revision, which is expected, could potentially accelerate the US rate cut timeline, dealers said.

Traders have factored in a 25 bps rate cut in the upcoming US FOMC meeting, but the data and Powell's speech could either reduce or increase the possibility of a 50 bps rate cut, dealers said. According to the CME FedWatch tool, Fed funds futures show 32.5% chance of a 50 bps rate cut by the FOMC in its upcoming meeting on Sep 18.

"Swaps are an opportunity to pay at these levels (around 6.08% on the five-year swap rate)," a dealer at a private bank said. "I don't think US interest rate pricing is changing in a hurry."

Meanwhile, volumes in India's short-term swap rates remained dull, similar to the last two days. Traders awaited fresh cues on the domestic interest rate view, either from offshore or in India, dealers said. The notional traded volume in the one-year swap rate was below 10 bln rupees today, only the seventh time in 2024.

On the domestic front, traders look ahead to commentary on growth and inflation in the minutes of the Reserve Bank of India's Monetary Policy Committee meeting held on Aug 6-8, dealers said. A change in the six-member MPC, scheduled before its next meeting in October, may limit the impact of the minutes, due Thursday. External members Jayanth Varma, Ashima Goyal, and Shashanka Bhide are due to be replaced.

Varma and Goyal have been the only members of the rate-setting panel to vote for cuts during the panel's current extended rate pause that has stretched to nine consecutive policy meetings. The comments from the three RBI members of the panel, who are scheduled to participate in the October meeting, will be watched to see if they acknowledge risks to growth that may move rate cuts forward, dealers said.

There were scattered trades in contracts maturing in less than one year, as traders adjusted their bets on when the policy repo rate would be cut from the current 6.50%. OIS rates had almost fully priced in a 25-basis-point rate cut in December, along with one more cut in the 6 months after that, dealers said.

"The swap pricing in the one-year segment is correctly spaced out and shows a 50-bps rate cut starting in December," a dealer at a primary dealership said. "That pricing is justified, and I don't think people have been too aggressive on either side for a while now."

OUTLOOK

Swap rates may take cues from the minutes of the US Federal Open Market Committee's July meeting, scheduled at 2330 IST, dealers said. The revision of US labour data until March this year may also be a trigger for the rate outlook in the world's largest economy.

Traders may remain cautious ahead of the Jackson Hole Economic Symposium in the US that starts Thursday, with US Fed Chair Jerome Powell scheduled to speak on Friday. The minutes of India's MPC meet earlier this month are due after market hours Thursday, and may also lend cues on interest rates, dealers said.

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 Deepshikha Bhardwaj

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 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.