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Informist, Monday, Nov. 18, 2024

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended lower, as offshore clients of some banks received fixed rates, likely due to bets on a lower-than-forecast India GDP print for the quarter ended September. Data on India's GDP will be released next week. Lack of any other significant global and domestic cues kept total notional volumes low, dealers said. 

The one-year swap rate ended at 6.56%, against 6.57% on Thursday. The five-year swap rate settled at 6.30%, compared to 6.33% the previous trading day.

Traders estimate the Jul-Sept GDP growth print at 6.2%, against the Reserve Bank of India's revised-down projection of 6.8%. Earlier, the RBI had projected a reading of 7%. A lower-than-expected reading could increase chances of a sooner and deeper rate cut cycle in India. Currently, traders expect a rate cut by the Monetary Policy Committee earliest in February. A high CPI reading for October, 6.21% against an Informist poll of 5.9%, dampened any hope of a rate cut by the MPC in December. The US presidential election result further diminished December rate-cut views, as winning candidate Republican Donald Trump's economic policies are expected to be inflationary, raising fears of imported inflation in India.

"Nifty is falling, earnings are weak, everything is slowing, so traders are punting on the GDP (data). If this prints low, then maybe chances of a Feb rate cut (by the MPC) are back on the table, no hopes of a December rate cut now (post the US election result and high India October CPI reading)," a dealer at a private bank said. 

Stable US yields despite negative cues aided the fall in OIS rates, dealers said. At the Indian market open on Monday, the yield on the 10-year US Treasury note was at 4.44%, against 4.45% at 1700 IST on Thursday. Indian financial markets were shut on Friday on account of Guru Nanak Jayanti. Early on Friday, US Federal Reserve Chair Jerome Powell said that economic growth and a robust job market did not warrant a need to rush into lower rates.

Later that day, advance monthly retail sales in the US for October rose slightly higher than expected. This led the yield on the 10-year US Treasury note to touch 4.51% over the weekend, before retreating to the 4.44-4.45% range. Powell's comments and the strong sales data saw the Fed fund futures pricing in 62% chance (as of 1700 IST) of a 25-basis-point cut in the federal funds rate in December, against 65% a week ago.

"Even in the US, the economic data is not very pro-rate cut right now...(the 10-year benchmark) US yields touched 4.50% levels post which it has come down, swaps are down because of this," a dealer at a private bank said.

Dealers also took the opportunity to benefit from the growing spread between swap rates across tenures, especially the 2-year swap rate and the 5-year swap rate, they said. The spread widened to as much as 4 basis points during trading hours Monday. Swap rates in the non-deliverable segment were similar to Indian market levels. Swap rates of tenures less than one year ended steady due to comfortable liquidity in the banking system, dealers said. 

OUTLOOK

On Tuesday, swap rates may take cues from the overnight movement in US yields and crude oil prices. Some traders may be on leave as money markets are shut on Wednesday owing to Maharashtra state assembly elections, which may affect volumes of trade, dealers said.

Traders await the US November flash manufacturing and services purchasing managers' index data, due post market hours on Friday, for cues on the US rate cut trajectory. On the domestic front, India's GDP numbers for the quarter ended September, due at 1600 IST on Nov. 29, will be looked at for cues on the onset of the rate cut cycle by the MPC.

The swap rate in the one-year segment is seen at 6.53-6.59% and in the five-year segment at 6.27-6.33%.

End

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

Edited by Avishek Dutta

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