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Informist, Thursday, Sep 26, 2024

By Siddhi Chauhan

MUMBAI – Overnight indexed swap rates ended steady today due to a dearth of significant global and domestic cues. An overnight rise in US yields, which cooled off during the day, failed to lend direction to the market, resulting in dull trading volumes, dealers said. 

The one-year swap rate ended at 6.36%, against 6.37% on Wednesday. The five-year swap rate ended at 5.99%, unchanged from the previous close.

Yield on the 10-year US Treasury note was at 3.77% at the time of the Indian market close, after rising to the day's high of 3.79%, against 3.76% at the end of Indian market hours on Wednesday. Yield on the benchmark 10-year US Treasury note rose on Wednesday as investors assessed the latest economic data from the US and pondered over the Federal Reserve's next interest rate decision. 

"Everyone's focus has shifted towards gilts, OIS market is dull while g-sec (government security market) has seen crazy volumes today," a dealer at a private bank said. "This is because US yields are stuck around the same levels. Now the data in the US is something that will move the market." According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover for government bonds was 1.15 trln rupees today, ahead of crucial calendars for debt supply this week.

Investors will try to gauge the strength of the US economy from the weekly initial jobless claims data and the third estimate of US GDP for Apr-Jun, dealers said. The data was released after market hours, and pointed to a slightly stronger labour market.

Traders also look forward to an address by US Federal Reserve Chair Jerome Powell at the New York Treasury Market Conference later today. His comments will be closely watched as they could give insights into further guidance on rates and the evolution of the economy. Ahead of such significant triggers on the global front, swap contracts maturing up to two years registered muted volumes, dealers said.

Even after a 50-basis-point rate cut from the US Federal Open Market Committee last week, and more expected to come by the end of the calendar year, traders remained unsure of when the Reserve Bank of India's Monetary Policy Committee would cut rates. It raised the policy repo rate by 250 bps 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.

"The one-year contract has also not seen much movement as traders are not sure about RBI's thinking on rate cuts," a dealer at a primary dealership said. "And swaps are not directly impacted by demand-supply factors like gilts, so it is either rate cuts or US that can move the market."

OUTLOOK

OIS rates may take cues from the overnight movement in US Treasury yields and crude oil prices, dealers said. US economic data and Fed Chair Powell's speech after market hours did not have a sizeable impact on the 10-year US Treasury note at 2045 IST.

US initial jobless claims for the week ended Sep 21 released post market hours dropped 4,000 last week to 218,000 which is the lowest level since May. Economists polled by Dow Jones were expecting weekly initial jobless claims to come in at 223,000 for this week.

The third estimate of US GDP for Apr-Jun showed a strength in the US economy. Gross domestic income growth, which measures economic activity from the income side, was revised up to 3.4% in Apr-Jun from the initially estimated 1.3% pace. The headline figure was retained at 3.0% growth on year, as expected in a Dow Jones poll.

After the data, the chances of a 50 bps rate cut have been reduced to 54.8% from 57.4% a day before, while the remaining expect a 25 bps cut by the FOMC in its November meeting.

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 Aditya Sakorkar

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