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Informist, Tuesday, Oct. 22, 2024

By Siddhi Chauhan

MUMBAI – Overnight indexed swap rates ended off highs Tuesday as US Treasury yields eased by the close of trade, with the paying pressure on fixed rates from offshore traders receding, dealers said. They had surged earlier due to an overnight rise in US Treasury yields and faded hopes of a rate cut in India, dealers said.

The one-year swap rate ended at 6.55%, against 6.54% on Monday, while the five-year swap rate settled at the day's low of 6.26% against 6.25% on the previous day. Both contracts ended at over two-month highs.

The yield on the 10-year benchmark US Treasury note closed at 4.20% at the time of Indian market close against 4.14% on Monday, retreating from 4.22% earlier, its highest since Jul. 26. On Monday, Minneapolis Federal Reserve President Neel Kashkari cited the resilient US economy and signalled higher long-term rates, while Dallas Fed President Lorie Logan favoured a more cautious approach to lowering rates.

"The market is seeing paying because of rise in US yields. We have crossed the levels of 4.20% (on the 10-year US yield), and then we have the US election within a few days," a dealer at a primary dealership said. "These elections will definitely have a bearing on the Treasury yields because of which many traders may remain cautious."

On the domestic front, most traders expect the Reserve Bank of India's Monetary Policy Committee to cut rates only by February. Some still hope lower-than-projected growth for Jul-Sept may convince the panel to cut the repo rate by 25 basis points to 6.25% in December. This prevented a further rise in OIS rates during the day, dealers said.  GDP data for Jul-Sept is scheduled to be released on Nov. 29, just before the Monetary Policy Committee next meets on Dec. 4-6.

"Yes, US yields are up, but then after seeing intense paying yesterday (Monday) it is very difficult to see fresh pay flows," a dealer at a private bank said. "I don't know who will pay at these levels, especially after RBI (Reserve Bank of India) staff revised their growth estimate."

In the monthly 'State of the Economy' article Monday, RBI staff cut their forecast for India's GDP growth in Jul-Sept to 6.8%, keeping it 20 bps below the central bank's official projection. India's GDP growth had slid to a five-quarter low of 6.7% in Apr-Jun, missing forecasts given by economists and the RBI.

OUTLOOK

On Wednesday, OIS rates are seen taking cues from the movement of US Treasury yields and crude oil prices, dealers said. Traders may be cautious in taking large bets ahead of the release of the minutes of the MPC's October meeting, due after market hours Wednesday.

In addition, developments in the conflict in West Asia will be keenly tracked. The swap rate in the one-year segment is seen at 6.45-6.62% and in the five-year segment at 6.12-6.30%.

End

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

Edited by Tanima Banerjee

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