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Informist, Thursday, Nov. 7, 2024

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates ended little changed Thursday owing to a lack of fresh cues on interest rates, dealers said. Traders avoided large bets ahead of the US Federal Open Market Committee's interest rate decision at 0030 IST Friday.

The one-year swap rate ended at 6.53%, against 6.54% Wednesday. The five-year swap rate settled at 6.30%, against 6.32% the previous trading day.

OIS rates were volatile Wednesday during the counting of votes cast in the US presidential election, which was called for Republican candidate and former president Donald Trump during market hours. While a Trump win was seen pushing up US Treasury yields and, consequently, OIS rates, the impact on the Indian market was limited as traders unwound their paid fixed rate bets placed prior to the outcome at a profit, dealers said.

"Today (Thursday) was a much calmer day in the market. I think whatever reaction to Trump that needed to happen has happened," a dealer at a primary dealership said. 

While the FOMC is widely expected to cut rates by 25 basis points, traders are awaiting comments by US Federal Reserve Chair Jerome Powell after the rate decision to gauge the interest rate trajectory in the US, dealers said. The medium-term outlook for US rate cuts has turned hazy following Trump's win. Trump's proposed policies are seen as inflationary and may potentially put the US central bank on a slower and shallower path for interest rate cuts, dealers said.

In India, however, traders retained their views of a rate cut in February. Traders also expect India's GDP in Jul-Sept to expand less than the Reserve Bank of India's forecast of 7.0%, which some said could prompt the RBI's Monetary Policy Committee to cut rates in December. Bets on an early rate cut remained light, dealers said.

Volumes in swap rates maturing up to two years remained muted as traders did not see any cues on domestic interest rates. Even offshore traders were not trading in large volumes, which led to a decrease in the volume of the five-year swap rate as well, from Wednesday. The 10-year US Treasury yield eased overnight, lending a trigger to trade on, but returned to near 4.45% by the end of Indian market hours.

"I don't think we are seeing the kind of offshore flows that people had feared after the (Trump) win," a dealer at a private bank said. "So realistically we should be at least 3-5 bps higher, since (the 10-year) US yields are up about 20 bps since Tuesday, but that's not happening at all."

OUTLOOK

On Friday, swap rates will take cues from the movement of US Treasury yields after the FOMC outcome at 0030 IST. The US panel is seen cutting interest rates by 25 bps, which has already been discounted by the market. It is the comments by Fed Chair Powell that will be watched more closely.

In addition, traders may take cues from crude oil prices and developments in the continuing conflict in West Asia. The swap rate in the one-year segment is seen at 6.45-6.65% and in the five-year segment at 6.25-6.42%.

End

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

Edited by Rajeev Pai

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