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Informist, Monday, Nov. 11, 2024

By Siddhi Chauhan

MUMBAI – The overnight indexed swap rates ended higher, with the five-year rate rising on offshore flows. Domestic traders also paid fixed rates on short-term swap rates on caution before the release of India's CPI data for October on Tuesday, dealers said. 

The one-year swap rate ended at 6.53%, against 6.51% on Friday. The five-year swap rate settled at 6.26%, against 6.23% the previous trading day.

The US bond markets were shut on Monday on account of Veterans Day. As a result, traders referred to US Treasury futures to get a handle on yields, dealers said. The 10-year US Treasury yield rose to a high of 4.36%, against 4.31% on Friday. Domestic traders did not pay much heed to the rise, but offshore traders paid fixed rates, which led to the rise in the five-year OIS rate, dealers said.  

"US markets are shut, so traders are referring to some sites which help them to see the broker code. The trades that are happening right now are first reflected on official sites and then on the terminal," a dealer at a primary dealership said. "According to that, US yields rose by around 5 basis points, this is why we are seeing some paying."

On the global front, traders look to the US CPI data for October, post market hours on Wednesday, for cues on interest rates in the US. After Republican Donald Trump won the US presidential election last week, traders have bet on a slower pace of rate cuts due to his promised policies being seen as inflationary. Currently, the CME FedWatch tool shows Fed fund futures pricing a 34.9% possibility of status quo in December by the FOMC, higher than 20% a week ago, before the election result. The majority still sees rate cuts.

Meanwhile, the October CPI print in India, due at 1600 IST on Tuesday, was the prime focus for rate cues domestically, dealers said. According to a median of an Informist poll, India's headline inflation rate likely rose to a 14-month high of 5.9% in October, led by a surge in food prices. 

Traders are widely expecting the domestic October CPI print to be within 5.70-6.10%, well above the Reserve Bank of India's 4% target. Even so, the market was well-prepared for a high print, especially with RBI Governor Shaktikanta Das' warnings to this effect in the last few weeks, dealers said. If CPI inflation substantially tops 6%, the odds of a rate cut are likely to be wiped out at the Monetary Policy Committee's next meeting, which will be reflected in near-term swap rates, dealers said.

"The volumes are very low today (Monday) because we don't have many cues. Traders are awaiting India CPI data which is expected to be on the higher side," a dealer at a private bank said. "This is why some domestic traders were seen paying fixed (rates) as they didn't expect rate cuts at least in December."

OUTLOOK

On Tuesday, swap rates may open steady on caution ahead of India CPI data due on Tuesday. Traders also await the release of US CPI data due on Wednesday, dealers said.

The market will await comments by Federal Reserve officials this week, including Federal Reserve Chair Jerome Powell's speech on Thursday. The comments will provide guidance on the outlook for rates. The movement of US Treasury yields, crude oil prices will also be closely watched, dealers said.

The swap rate in the one-year segment is seen at 6.43-6.60% and in the five-year segment at 6.20-6.40.

End

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

Edited by Vidhi Verma

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