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Informist, Thursday, Oct. 24, 2024

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates ended little changed due to a lack of significant interest rate cues, dealers said. Global cues offset each other while fixed-rate receiving by domestic traders over the past two days cooled off on Thursday.

The one-year swap rate ended at 6.54%, against 6.53% on Wednesday. The five-year swap rate settled at 6.24% against 6.23% the previous day.

"The receiving activity from the domestic side ended in the first half," a dealer at a private bank said. "After that, offshore paying was not very strong, otherwise we would have been in trouble (OIS rates may have risen)."

The five-year OIS was unable to break its 200-day moving average earlier this week, leading to a correction in rates. A large mutual fund was speculated to have received the five-year OIS, dealers said.

OIS rates, particularly that on the five-year contract, had been climbing continuously as offshore cues turned adverse. Hopes of the Reserve Bank of India's Monetary Policy Committee cutting the repo rate at its next meeting in December have faded after India's CPI inflation in September surprised on the higher side, dealers said. RBI Governor Shaktikanta Das' comments on Friday that rate cuts would be "very premature" and "very, very risky" at this stage led to rate cuts now being priced largely in February.

In the latter half of the day, the intraday fall in US Treasury yields was in focus, though traders avoided aggressive bets before US data on jobless claims and flash purchasing managers' index after market hours, dealers said. 

The yield on the 10-year US Treasury note eased below 4.20%, from 4.23% at 0900 IST. The reaction to US yields was muted as offshore traders did not unwind fixed rate bets in OIS at the time, dealers said. Moreover, traders expected US yields to remain high ahead of the US presidential election on Nov. 5. The odds of Republican candidate Donald Trump winning the election had risen, and his policies are expected to drive up the 10-year US Treasury yield.

"The market is a bit directionless, and the repricing to February (RBI rate cut) has already happened," a dealer at a primary dealership said. "The market has been quiet from the offshore side these days, so rates will not be ready to move until we see some activity from them."

OUTLOOK

On Friday, OIS rates are seen taking cues from the movement of US Treasury yields and crude oil prices. Volatility may be limited due to a lack of significant cues, though US data released after market hours could push up swap rates, dealers said.

US initial jobless claims for the week ended Saturday rose 227,000, lower than the previous week and below estimates in a Dow Jones poll. The US flash purchasing managers' index for October was higher than expected for both services and manufacturing, indicating a resilient US economy.

In addition, developments 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 Saji George Titus

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