India IRS Review
Steady as US election outcome keeps traders cautious
This story was originally published at 20:00 IST on 4 November 2024
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By Cassandra Carvalho
MUMBAI – Overnight indexed swap rates were steady ahead of the US presidential election outcome on Tuesday. Swap rates tracked the movement in US Treasury yields, though their impact was muted just ahead of the major event, dealers said. The five-year OIS tracked an intraday fall in US yields as traders received fixed rates after opening higher due to the yield of the 10-year US Treasury note reaching 4.40% over the weekend, dealers said.
The one-year swap rate ended at 6.54%, against 6.55% on Thursday. The five-year swap rate settled at 6.29%, against 6.30% the previous trading day. India's money markets were shut Friday for Diwali.
The yield on the 10-year benchmark US Treasury note eased to 4.29% at 1700 IST from 4.40% at settlement on Friday, as media polls over the weekend showed a stronger chance of Democratic candidate Kamala Harris winning the US elections, and fears of Republican candidate Donald Trump winning the presidency receded. Trump's policies are seen pushing up US Treasury yields over the medium term.
"There's an event risk (the US Presidential election) so the data points were discounted...even though they showed some weakness (in the US economy)," a dealer at a private bank said.
The US data released over the weekend was sharply lower-than-view, with non-farm payrolls rising by 12,000 against estimates of 100,000. The payroll data, however, was considered an outlier due to recent hurricanes and worker strikes in the US. Traders discounted the number as US elections presented a bigger concern for the trajectory of the Federal Open Market Committee's rate cut cycle, dealers said. The FOMC will meet on Wednesday and Thursday to decide on further cutting interest rates or keeping a status quo.
"No offshore traders will trade swaps now, even domestic traders are cautious before the election," a dealer at another private bank said.
Notional trading volumes were low as domestic traders were cautious ahead of the US election on Tuesday. Offshore traders also refrained from placing any bets in Indian markets as the election uncertainty was felt globally, dealers said. Moreover, there were no fresh cues on the domestic front.
A rise in crude prices was also neglected as traders were comfortable with the increase as long as the current levels were sustained, dealers said. Brent crude futures for January rose to $75.37 a barrel at 1700 IST from $73.16 a barrel on Thursday.
OUTLOOK
On Tuesday, the movement of US Treasury yields ahead of the US Presidential election may lend cues to swap rates. Any development in the US regarding the elections, including early voting trends, will also lend cues to swap rates, dealers said.
In addition, developments in the conflict in West Asia and the movement in crude oil prices may also be a factor for OIS rates. The swap rate in the one-year segment is seen at 6.52-6.57% and in the five-year segment at 6.20-6.33%.
| At 1700 IST | THURSDAY |
1-year OIS | 6.54% | 6.55% |
2-year OIS | 6.31% | 6.30% |
5-year OIS | 6.29% | 6.30% |
2-year MIFOR | 6.53-6.65% | 6.55-6.67% |
5-year MIFOR | 6.74-6.86% | 6.76-6.88% |
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
US$1 = INR 84.12
Edited by Tanima Banerjee
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