More Stories

Informist, Tuesday, Oct. 15, 2024

By Aaryan Khanna

NEW DELHI – Overnight-indexed swap rates ended on a mixed note on Tuesday. The five-year swap rate fell as offshore traders received fixed rates due to a sharp fall in crude oil prices, while rates maturing up to one year inched up after a higher-than-expected September CPI inflation dimmed hopes of a rate cut in December.

The one-year swap rate ended at 6.47% against 6.45% Monday. The five-year swap rate settled at 6.15%, against the previous close of 6.18%.

Brent crude for December delivery fell to $73.34 a barrel intraday on Tuesday, the lowest in two weeks, after touching $80 a barrel last week. The contract fell nearly 4% from Monday's settlement to $74.31 a barrel at the end of Indian market hours. Traders had feared a supply shock in oil due to rising tensions in West Asia. However, media reports Tuesday suggested Israel would not target Iranian oil production facilities in retaliation. Moreover, the Organization of the Petroleum Exporting Countries on Monday lowered its demand outlook for this year and 2025 due to concerns about demand from China.

Offshore traders had consistently paid fixed rates in the five-year swap over the last few days due to high crude oil prices, dealers said. India is particularly vulnerable to oil price shocks as it imports nearly 80% of its crude requirements. The Reserve Bank of India's latest growth and inflation projections peg India's crude oil basket to average $80 a barrel in Oct-Mar.

Moreover, the yield on the 10-year US Treasury note fell 3 basis points from 1700 IST on Monday to 4.08% at the end of Indian market hours, after recently hitting highs last seen in July. The impact was primarily in the five-year swap rate, which fell after inching up for three straight days.

"Offshore momentum has turned completely, and some of it was due to chunky trades as well," a dealer at a private bank said. "With such a large fall in crude prices, we should be more insulated from the day-to-day impact in the Middle East (West Asia conflict)."

Notional trade volumes surged across contracts due to the significant cues, as well as the opposing trigger in the form of higher domestic inflation. India's CPI inflation rose to a nine-month high of 5.49% in September, against 5.1% expected in an Informist Poll. CPI inflation for Jul-Sept averaged 4.2%, against the RBI's projection of 4.1% for the quarter.

Last week, the RBI's Monetary Policy Committee softened its policy stance to 'neutral' from 'withdrawal of accommodation', and traders had anticipated the MPC would begin cutting rates in December. Kotak Mahindra Bank pushed back its call on the first repo-rate cut to February from December earlier after the inflation data.

Traders did not rule out rate cuts completely but said the odds had decreased substantially. The October CPI and the Jul-Sept GDP data are now the most crucial cues on rates before the MPC next meets on Dec. 4-6, dealers said. With conflicting views and uncertainty over the medium-term rate outlook, the two-year swap rates were little changed.

"The two-year swap rate became the fulcrum for trade because it had the most mixed views," a dealer at a foreign bank said. "If you don't know what direction that policy is moving in, ultimately you came to the two-year and tried to square out your position." 

OUTLOOK

OIS rates are seen opening steady on Wednesday due to a lack of significant domestic interest rate cues, dealers said. Movements in US Treasury yields and crude oil prices and developments in West Asia will be keenly tracked.

The swap rate in the one-year segment is seen at 6.40-6.55% and in the five-year segment at 6.05-6.25%.

End

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

Edited by Saji George Titus

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.