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Informist, Wednesday, Aug 28, 2024

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates ended steady today as rate cut expectations in the US and India remained largely unchanged. Traders look forward to key economic data for fresh cues on the quantum and pace of interest rate cuts in either economy, dealers said.

The one-year swap rate ended at 6.48%, against 6.49% on Tuesday. The five-year swap rate ended at 6.06%, against 6.07% the previous trading day.

US GDP data for Apr-Jun and weekly unemployment claims are scheduled for release after Indian market hours Thursday. The US Federal Reserve's preferred inflation gauge – the core personal consumption price index – and India's Apr-Jun GDP are due after market hours on Friday. The aggressive rate cut bets in the US could be sensitive to a pullback if growth and the labour market both show resilience in the US, dealers said.

All four data points could change the view on the Indian interest rate trajectory, particularly with the uncertainty on whether the Reserve Bank of India's three members on the Monetary Policy Committee are willing to cut rates in a hurry, dealers said. The central bank's CPI inflation projections until Apr-Jun 2025 all show price rise staying above its 4% inflation target.

Volumes in OIS contracts remained robust as traders readjusted their interest rate bets at levels that have not been seen for over a year. The notional traded amount in the three-month swap rate shot up to 28.50 bln rupees, the most since Aug 8, with all 16 trades settled at 6.59%. This was likely a corporate house or other investor hedging its interest rate exposure in the near-term, dealers said.

"There is a consistent receiving bias we have seen," a dealer at a foreign bank said. "It is difficult for paying momentum to sustain when NDOIS (non-deliverable OIS) remains below the onshore rate."

Offshore traders have been consistently receiving fixed rates in India's swap contracts over the past week. The momentum tapered off for some time today due to a sharp rise in East Asian swap rates. Some domestic traders also paid fixed rates in the five-year OIS contract after entering bond forward-rate agreement contracts with insurers, dealers said.

According to media reports, the Korean government is likely to miss its fiscal consolidation target for this year and increase its market borrowing next year. This is likely to push up Korean bond yields, and has led to significant paying in the country's swap rates, dealers said. More fiscal spending and weaker consolidation weaken the case for rate cuts by the Bank of Korea.

"Receiving flows into Asia have stopped because of the Korea situation. At the current levels, if you don't get continuous receiving from offshore, the rates will start drifting up," a dealer at a primary dealership said.

OUTLOOK

On Thursday, swap rates may open steady due to lack of triggers, dealers said. Traders look ahead to US growth, jobs and inflation data, as well as India's GDP numbers on Friday, for cues on interest rates.

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 6.43-6.58% and in the five-year segment at 6.00-6.18%.

End

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

Edited by Ashish Shirke

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