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Informist, Wednesday, Nov. 13, 2024

By Siddhi Chauhan

MUMBAI – Overnight indexed swap rates ended higher Wednesday on caution ahead of the release of US CPI data for October and on an overnight rise in US Treasury yields, dealers said. An intraday easing in US yields cooled offshore flows paying fixed rates, and the five-year swap rate ended off-highs.

The one-year swap rate ended at 6.55%, against 6.54% on Tuesday. The five-year swap rate settled at 6.30% after hitting a high of 6.33%, from 6.27% the previous trading day.

US CPI inflation is expected to rise to 2.6% in October from 2.4% a month ago due to a base effect, according to Dow Jones. The data is keenly awaited as it would provide cues on the US Federal Reserve's rate trajectory. A higher reading may weigh on US rate cut hopes in the near term, dealers said. The odds of a December US rate cut had shrunk to around 60% ahead of the inflation print and the election of Donald Trump as the 47th President of the US. The odds had declined about 25 percentage points from a month ago, according to the CME FedWatch tool.

"The market opened higher today because of US yields, now that they have retraced by around 5 basis points, (swap) rates are also falling," a dealer at a primary dealership said. "Already the market has risen significantly now and for the market to rise from here a significant trigger will be required."

After rising to the day's high of 4.45%, the yield on the 10-year US Treasury note was at 4.42% at 1700 IST, against 4.37% on Tuesday. At the day's high, the five-year swap rate had risen 30 basis points since October, about half the rise in the 10-year US yield.

On the domestic front, the rupee hit a lifetime low of 84.41 a dollar, resulting in traders paying fixed rates. However, the momentum faded in the latter half of trade, dealers said.

"We did see paying interest after depreciation of the currency, but then intervention probably took place by the RBI (Reserve Bank of India)," a dealer at a private bank said. "After the intervention, the spread over the currency became less lucrative, US yields also retraced, which reduced the paying bias," Informist reported at 1140 IST that banks sold dollars, likely on behalf of the RBI at around 84.41 a dollar, limiting the rupee's losses.

OUTLOOK

On Thursday, swap rates may take cues from US CPI data for October, released at 1900 IST. US consumer inflation rose to 2.6% in October from 2.4% in September, in line with expectations. 

Any reassessment of the US rate view may also hit India's swap rates, dealers said. US Fed Chair Jerome Powell's speech on Thursday is also keenly awaited, though swap rates will only react next week as India's money markets are shut on Friday for Guru Nanak Jayanti.  

The movement of US Treasury yields and 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 Saji George Titus

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