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Informist, Thursday, Oct. 17, 2024

By Siddhi Chauhan
 

MUMBAI – Overnight indexed swap rates ended steady Thursday due to a lack of domestic interest rate cues. Offshore traders likely paid fixed rates in the five-year contract ahead of the US retail sales and jobless claims data, which were due post market hours, dealers said. The one-year swap rates were little changed due to lack of domestic interest rate cues. 

The one-year swap rate ended at 6.48% against 6.47% Wednesday. The five-year swap rate settled at 6.15%, against the previous close of 6.13%.

"The paying does not seem to be merely be a response to the rise in US yields, because it has barely moved since the morning," a dealer at a private bank said. "It seems that people are hedging ahead of US data that are expected to release today (Thursday)."

US retail sales data for September and initial jobless claims data for the week ended Saturday were both due at 1800 IST. US retail sales were expected to rise to 0.3% on month in September from 0.1% in August, while unemployment claims were expected to rise on week. These data points were closely watched to get a clearer picture of the health of the US economy and the trajectory of rate cuts in the world's largest economy, dealers said.

Traders speculated the activity was focused on the upcoming data rather than the slight rise in US Treasury yields, dealers said. After rising to the day's high of 4.05%, the yield on the 10-year US benchmark note settled at 4.04% at the end of Indian market hours, against 4.01% Wednesday.

After market hours, data showed US retail sales for September grew 0.4% on month, against 0.3% estimated by Dow Jones. Initial jobless claims in the US for the week ended Saturday were at 241,000, lower than 259,000 expected. Both the data points indicated that the US economy remained resilient, weakening the case for rate cuts in the US. The US Federal Open Market Committee began its rate cut cycle in September with a larger-than expected 50-basis-point cut.

Meanwhile, there was also lack of clarity on a repo rate cut in India as well. A delay in rate cuts by the Reserve Bank of India beyond December has largely been priced in by the market, with the one-year swap now showing only 50 bps of rate cuts in the next 12 months, dealers said.

The RBI's Monetary Policy Committee last week softened its policy stance to 'neutral' from 'withdrawal of accommodation', but there was no guarantee it would follow up with a rate cut, dealers said. CPI inflation in October is also expected to be near 5%, and that will be the last inflation print before the MPC meets again in December.

"There is no meaningful trade happening today (Thursday) because there are literally no cues," a dealer at a private bank said. "There is a lot of confusion about rate cuts in India, this is why the one-year swap rate is very cheaply priced."

OUTLOOK

On Friday, OIS rates are seen taking cues from the movement of US yields after the release of high-frequency data on retail sales and joblessness, dealers said. Offshore cues will be in focus amid a lack of domestic triggers.

Both data points indicated that the US economy is resilient. After the data, the probability of a status quo on rates doubled to nearly 15%, with the majority still expecting a 25-bps rate cut by the US FOMC in November, according to the CME FedWatch tool. 

Movements in 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 Tanima Banerjee

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