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Informist, Wednesday, Sep 25, 2024

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates ended a tad lower because of an overnight fall in US Treasury yields, dealers said. As has been routine in September, offshore traders received fixed rates while domestic traders were on the opposite side of the trade.

The one-year swap rate ended at 6.37% against 6.39% Tuesday. The five-year swap rate ended at 5.99%, against 6.02% at the previous close.

The yield on the 10-year US Treasury note fell to a low of 3.73% today, from 3.80% at 1700 IST Tuesday. US yields fell after unexpectedly low consumer confidence in the US in September. The Consumer Board's confidence index fell to 98.7 in a survey up to Sep 17, against 105.6 in August. This is the biggest one-month decline since August 2021. Traders were not looking ahead to the data, but reacted to the movement in US yields.

"Even we are getting confused by the data that moves the US market and can't always keep track," a dealer at a primary dealership said. "This one was not on many radars, but still the flow came in and the (OIS) market moved."

Even as US yields inched up by the end of trade, the receiving from offshore remained, dealers said. However, traders from private banks and domestic primary dealerships probably increased their paid fixed rate bets. The five-year OIS contract had its highest notional traded volume in nearly two weeks, at 73.80 bln rupees.

"Paying OIS is the better hedge if you are not convinced the RBI will not pull the trigger on rate cuts," a dealer at a private bank said. "It is offering you both a good opportunity at these levels, and there is also some movement in the five-year to get some gains, unlike in the government bond market."

Traders said an expected easing in banking liquidity conditions over the next week may ease the paying pressure on short-term swap contracts, dealers said. The overnight Mumbai Interbank Offer Rate, the floating leg of the OIS contract, has been set at 6.70% or higher since Sep 13--above the repo rate of 6.50%. This week, it has been set at 6.80%.

The liquidity deficit in the banking system reduced slightly to 263.82 bln rupees Tuesday, from a deficit of 334.47 bln rupees Monday. Market participants expect the liquidity to return to surplus mode through inflows from the government's month-end spending.

OUTLOOK

OIS rates may open steady Thursday due to a lack of fresh cues on interest rates, dealers said. US personal consumption expenditures inflation for August is awaited later this week for further clarity on the US rate cut trajectory.

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 Rajeev Pai

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