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Informist, Tuesday, Sep 10, 2024

By Siddhi Chauhan

MUMBAI – Overnight indexed swap rates ended steady today due to lack of firm triggers both on the global and domestic fronts, dealers said. Traders await the release of inflation data releases from the US as well as India, they said.

The one-year swap rate ended at 6.44%, against 6.46% on Monday. The five-year swap rate ended at 6.05%, against 6.06% the previous trading day.

"Nothing much is happening in the market, volumes are also low because there is no trigger for us to act upon. After falling overnight, US yields have also not moved much on an intraday basis," a dealer at a private bank said. "We are hoping that this will change after India and US CPI data." 

An overnight fall in US yields resulted in traders receiving fixed rates at the beginning of trade, but this failed to materialise into a significant movement, dealers said. After rising to as high as 3.73% through the day, the yield on the 10-year benchmark US Treasury note was at 3.72% at the time Indian markets closed, against 3.75% on Monday.

Traders were cautious about taking large bets in swaps ahead of the release of the final major US inflation print on Wednesday, before the Federal Open Market Committee's meeting next week, dealers said. The data holds significance as it would help investors gauge the quantum of rate cuts by the Federal Open Market Committee in its meeting outcome on Sep 18. Currently, the odds of a 50-basis-point rate cut at the FOMC's September meeting are 27%, according to the CME FedWatch tool. The majority see a more moderate 25-bps rate cut. 

The headline consumer price index in the US is expected to rise 0.2% on month in August, unchanged from the month earlier, as per a poll by Reuters. On a yearly basis, inflation is expected to have risen 2.6% last month, down from a 2.9% increase in July.

Traders also await India's CPI data for August, as it would give better clarity on the trajectory of interest rates in India, dealers said. According to an Informist poll, India's CPI inflation is seen at 3.6% in August, the second consecutive month it would have stayed below the Reserve Bank of India's target of 4%. 

The domestic print has been a topic of discussion in the market. While many expect the data to be well within the consensus, ranging from 3.4-3.6%, a few see the data falling to as low as 3.20%. "There are a few people who are expecting that the India inflation data can even fall to 3.20%. This is because they are expecting a sharp month-on-month fall in vegetable prices," a dealer at a primary dealership said. "If this happens, RBI might consider cutting rates even earlier."   

If both the inflation prints fall below the market consensus, the one-year swap contract is seen falling to 6.40%, while the five-year swap rate might fall to below 6.00%, dealers said.

OUTLOOK

On Wednesday, swap rates are seen opening steady as traders await inflation data for August in India and the US this week. These are likely to provide interest rate cues for both the economies, with traders having high expectations of imminent rate cuts, dealers said.

India's CPI print for August is seen at 3.6%, the second consecutive month it would have stayed below the Reserve Bank of India's target of 4%, according to an Informist poll. 

Meanwhile, the headline consumer price index in the US is expected to rise 0.2% on month in August, unchanged from the month before, as per a poll by Reuters. On a yearly basis, inflation is expected to have risen 2.6% last month, down from a 2.9% increase in July.

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 6.43-6.53% and in the five-year segment at 6.00-6.12%.

End

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

Edited by Avishek Dutta

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