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Informist, Friday, Oct. 4, 2024

By Siddhi Chauhan

MUMBAI – Overnight indexed swap rates ended higher Friday as traders had placed bets ahead of September non-farm payroll data that was due at 1800 IST, dealers said. An overnight rise in crude oil prices and US Treasury yields also resulted in traders paying fixed rates, they said. The one-year swap rate ended at 6.45% against 6.42% on Thursday. The five-year swap rate settled at 6.14%, against the previous close of 6.08%.

Before the release of non-farm payrolls data, traders fearing an adverse situation started paying fixed rates in the swap market, dealers said. US yields also rose to 3.86% at the close of the Indian market Friday against 3.80% on Thursday. "Traders who are expecting the data (non-farm payroll data) to be on the higher side are selling in the g-sec (government security) market and paying in swaps," a dealer at a primary dealership said. "If the data does come strong, then the chances of a higher cut by Fed (US Federal Reserve) will decrease."

The US jobs data was released after market hours and showed a rise of 254,000 jobs in September, against 150,000 expected. Before the release, the chances of the US Federal Open Market Committee cutting rates by 25 basis points in its November meeting stood at 68%, up from 46.7% a week ago, according to the CME Group's FedWatch Tool. That shot up to 94.5% after the data, with only a minority seeing a 50-basis point rate cut. A poll by Reuters had forecast the data to show that the economy would maintain a moderate pace of job growth in September, while the unemployment rate was expected to remain steady at 4.2%. "Traders who are expecting the data (non-farm payroll data) to be on the higher side are selling in the g-sec (government security) market and paying in swaps," a dealer at a primary dealership had said. "If the data does come strong, then the chances of a higher cut by Fed (US Federal Reserve) will decrease."

While worsening geopolitical tensions in West Asia resulted in a rise in crude oil prices, rise in US yields also added to the negative sentiment. Brent crude futures for December delivery rose to $78.71 a barrel at the time Indian market closed Friday against $75.14 a barrel on Thursday. Crude oil prices continued to rise due to the chances of the West Asia conflict impending supply of the commodity.

According to reports, the Israeli military on Thursday night had warned people to evacuate communities in southern Lebanon that are outside a United Nations-declared buffer zone. This signalled that the country may increase its ground operations launched earlier this week against the Hezbollah militant group. They also said that they had struck around 200 Hezbollah targets across Lebanon, which included weapons storage facilities and observation posts. Strikes continued overnight when a series of massive blasts rocked Beirut's southern suburbs. 

"There is a lot of exuberance in the market. There are expectations of the (US jobs) data coming higher and if that happens, then the US yield could even break the level of 3.90%," a dealer at another primary dealership said. "Crude also seems to be heading towards $83 a barrel, weekend is also there. No one knows who will drop how many missiles on the other, so it is better to take positions now."

OUTLOOK

Swaps are not traded on Saturday. On Monday, a rise in US Treasury yields may push up OIS rates, following the US September employment report released post market hours today, dealers said.

The CME Group's FedWatch shows the likelihood of a modest rate cut at 94.5% after the data, with only a small minority seeing a 50-basis point rate cut. Traders may also take cues from the movement in crude oil prices. The developments in the West Asia region will also be closely watched, dealers said.

On the domestic front, the market awaits the outcome of the RBI's monetary policy meeting on Wednesday. Expectations of monetary policy easing in India are mixed due to the rise in crude oil prices, dealers said. 

The swap rate in the one-year segment is seen at 6.40-6.58% and in the five-year segment at 6.10-6.25%.

End

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

Edited by Deepshikha Bhardwaj

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