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Informist, Tuesday, Sep 24, 2024

By Siddhi Chauhan

MUMBAI – Overnight indexed swap rates ended steady due to lack of significant domestic and global cues, dealers said. During the day, the five-year contract saw very little onshore paying due to a slight rise in US Treasury yields today, dealers said. 

The one-year swap rate ended at 6.39%, unchanged from Monday. The five-year swap rate ended at 6.02%, against 6.01% at the previous close.

"There is no enthusiasm today in the swap market, very little paying is happening because of a slight rise in US yields," a dealer at a private bank said. "Also, the levels that we are seeing right now on one-year and five-year swaps are both crucial levels. For us to move from that level, we will need a higher movement in US yields." 

A rise in US Treasury yields failed to result in a significant movement, dealers said. At the time of the Indian market close, the yield on 10-year benchmark US Treasury note was at 3.79%, against its close of 3.75% on Monday. During the day, the yield on the US 10-year benchmark rose to the day's high of 3.81%.

US Treasury yields rose during the day as market participants awaited fresh comments from Federal Reserve officials. Fed Governors Michelle Bowman and Adriana Kugler are both scheduled to deliver remarks on the US economic outlook at separate events later today.

The market now looks forward to the US personal consumption expenditure scheduled for Friday for further insight on the likely pace of rate cuts by the Federal Reserve over the next few months, dealers said. 

According to a poll conducted by Dow Jones, the core PCE index for August is expected to rise to 2.3% on year against 2.5% in the previous month. Currently, Fed fund futures show a 49.5% probability of a 25-basis point rate cut, and a nearly equal probability of a 50-bps rate in the Fed's November meeting, according to the CME FedWatch tool. 

On the domestic front, uncertainty regarding the timing of interest rate cuts by the Reserve Bank of India's Monetary Policy Committee limited bets in the one-year contract, dealers said. 

"People are not really sure what the central bank will do. Many people do see the chances of a rate cut in December, but then we see various comments that douse these expectations," a dealer at a primary dealership said. "Let's see what happens now." 

India's Monetary Policy Committee raised the policy repo rate by 250 basis points to 6.50% between May 2022 and February 2023, and has maintained it there since. A series of rate cuts beginning in the next three months has already been priced into swaps, with the benchmark one-year OIS rate pricing in a cut of nearly 75 bps over the next year, starting in December, dealers said.

OUTLOOK

OIS rates may open steady Wednesday on lack of firm global and domestic cues, dealers said. Traders may look forward to the comments of Federal Reserve Governors Michelle Bowman and Adriana Kugler, scheduled to deliver remarks on the US economic outlook at separate events later today. 

The market also looks forward to the US PCE index, due Friday. 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 6.35-6.53% and in the five-year segment at 5.90-6.10%.

End

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

Edited by Tanima Banerjee

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