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Informist, Tuesday, Oct. 29, 2024

By Siddhi Chauhan

MUMBAI – After touching three-month high levels in the previous trading session, the overnight indexed swap rates reversed early gains on Tuesday as onshore traders received fixed rates, dealers said. An intraday rise in US Treasury yields failed to lend significant cues to swap rates. 

The one-year swap rate ended at 6.54, against 6.59% on Monday. The five-year swap rate settled at 6.29%, against 6.32% the previous trading day.

"There is onshore receiving interest at the current levels. Given the fact that the front end of the curve is not factoring in rate cuts, these levels appear lucrative for us to buy (receive)," a dealer at a primary dealership said. "This is why the impact of the rise in US yields was compensated for."

The one-year swap rate fell the most across the curve, as the pricing suggested the Reserve Bank of India's Monetary Policy Committee would not even cut the policy repo rate by February, dealers said. The rate had risen so much due to large offshore flows from hedge funds on Monday. The consensus market view domestically was a repo rate cut by February, in which case short-term swap rates were lucrative to receive, dealers said. 

The near-term OIS rates also eased due to a fall in the Mumbai Interbank Offer Rate – the floating leg of the OIS contract, dealers said. The overnight MIBOR rate aligned with the policy repo rate of 6.50% Tuesday after staying at 6.70% or above for five days. The fall in the rates was attributed to an increase in liquidity surplus on account of inflows of government month-end spending. On Monday, surplus liquidity in the banking system was INR 849.83 billion, against INR 639.77 billion on Sunday.

The fall in the five-year OIS rate was capped by the intraday rise in the yield on the 10-year US Treasury note to a near four-month-high of 4.32%. The US 10-year yield rose this month as the odds of Republican candidate Donald Trump winning the US presidential election next week have led to fears of higher government spending. Even as some foreign banks paid fixed rates, traders were of the view that OIS rates would not track US yields closely as US interest rate expectations were unchanged, dealers said.

"The US right now is more concerned about the election, the movement in US yields currently has nothing to do with rate cut expectations," a dealer at a private bank said. "This is why many traders are disregarding it."
 

OUTLOOK

On Wednesday, swap rates are seen taking cues from the Job Openings and Labor Turnover Survey due at 1930 IST. The movement of US Treasury yields and crude oil prices will also be closely watched. Further cues on the outcome of the US elections on Nov. 5, will also be eyed, dealers said.

The ADP’s private payroll data, US Jul-Sept advance estimate of GDP, and US personal consumption expenditures are also due this week. These data points will be watched closely for hints ahead of the US Federal Open Market Committee's meeting on Nov. 6-7.

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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