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Informist, Thursday, Nov. 14, 2024

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended higher as both domestic and global traders paid fixed rates as the yield on the 10-year US Treasury note rose to 4.48% overnight and remained above 4.45% during trading hours. Tepid demand at the weekly gilts auction also pushed up OIS rates as traders paid the five-year swap rate to protect their underlying gilt holdings, dealers said. 

The one-year swap rate ended at 6.57%, against 6.55% on Wednesday. The five-year swap rate settled at 6.33% from 6.30% the previous trading day.

Consumer inflation in the US printed at 2.6% in October, in line with Dow Jones estimates. After the data release, the odds of a 25-basis-point rate cut by the Federal Open Market Committee in December rose to 82%, from 60% before the data, according to the CME FedWatch tool. While inflation was higher than September's 2.4%, the October reading was attributed to the unfavourable effect of a low base. 

Despite this, US yields rose, with the 10-year Treasury yield nearing the 4.50% mark. Traders said this was likely because investors feared that US inflation could spike under the incoming Donald Trump administration, after he won the US presidential election last week. Trump's economic policies are viewed as protectionist and inflationary.

"Domestic fundamentals remain strong, so now I think we're aligning with global rates (as views on a sooner rate cut cycle diminish), but at the same time it's holding up the market. US yields have moved 10 basis points, and we've (swap rates) moved 2 (bps)," a dealer at a private bank said.

Overnight indexed swap rates also rose because of poor investor appetite seen at the INR-370-billion weekly gilt auction, dealers said. Cut-off prices for both the 7.04%, 2029 gilt and the 7.09%, 2054 gilt were slightly lower than expected, while the coupon on the new 15-year, 2039 bond auctioned was set at 6.92%, the same as the median of an Informist poll.

"Auction result was bad, and traders want to reduce risk over the long weekend, so there was trimming both in gilts and swaps," a trader at a primary dealership said. Financial markets are shut on Friday on the occasion of Guru Nanak Jayanti. A three-day gap in trading left huge room for risk and uncertainty, dealers said. 

OUTLOOK

Financial markets are shut on Friday on the occasion of Guru Nanak Jayanti. Swap rates are not traded on Saturday. On Monday, swap rates may take cues from a speech by US Federal Reserve Chair Jerome Powell and US retail sales data for October on Friday.

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 6.54-6.60% and in the five-year segment at 6.30-6.36%.

End

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

Edited by Akul Nishant Akhoury

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