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Informist, Thursday, Nov. 21, 2024

By Siddhi Chauhan

MUMBAI – Overnight indexed swap rates ended steady as the impact of a rise in US Treasury yields was largely offset by domestic traders receiving fixed rates, dealers said. Traders speculated a large domestic entity was hedging its bond exposure in OIS, while others said the focus was on India's GDP inflation print for rate cut cues.

The one-year swap rate ended at 6.54%, against 6.53% on Tuesday. The five-year swap rate settled at 6.25%, compared to 6.24% the previous trading day.

Traders expect that India's GDP grew between 6.3% and 6.8% in Jul-Sept. The Reserve Bank of India forecasts September quarter GDP growth at 7.0%. An RBI staff paper released on Wednesday, which had Deputy Governor and Monetary Policy Committee member Michael Patra among its authors, pegged Jul-Sept GDP growth at 6.7%. In Apr-Jun, GDP growth slumped to a five-quarter low of 6.7%, 40 basis points lower than the RBI's estimate.

"Despite a weaker bond market and an unfavourable global market, we are seeing lots of receiving, it seems that real money is involved," a dealer at a primary dealership said, referring to an investor or corporate house receiving fixed rates. "What is brewing here is that the GDP data is expected to be lower than expectation, post that the possibility of rate cuts seems nearer than what the market is thinking. As a result, these will be good levels to receive."

The data is due for release on Nov. 29, over a week away, but it has been the market's focus for its bets through the week. Moreover, the five-year swap rate is seen as lucrative to receive when it rises to the 6.25-6.30% band, dealers said. Even if the growth data fails to make a case for rate cuts in December, it would be difficult for the MPC to overlook the slowdown and not cut rates by February, dealers said. 

"If the GDP print is lower than 6%, that could make a case for a December rate cut," a dealer at a private bank said. "Even if we don't see rate cuts in December, there is pressure on the MPC as two ministers have already spoken how lower interest rates would be profitable."

Finance Minister Nirmala Sitharaman said on Monday that bank interest rates would have to be more affordable for industrial growth. The comments came after trade minister Piyush Goyal last week also called for lower interest rates. 

In early trade, traders paid fixed rates due to a rise in US Treasury yields overnight The yield on the 10-year US Treasury note rose to a high of 4.42% from 4.38% at the time the Indian market closed on Tuesday. India's money markets were shut on Wednesday for Maharashtra's assembly elections.

The 10-year US Treasury yield rose after US Federal Reserve Governor Michelle Bowman said there is still time for inflation to reach the 2% target and the US central bank needs to be cautious while cutting rates. Bowman was the sole voter for only a 25-basis-point rate cut in September, when the Federal Open Market Committee began its rate-cut cycle with a 50-bp cut.

OUTLOOK

On Friday, swap rates may take cues from weekly initial jobless claims data, scheduled to be released at 1900 IST. The market may also take cues from overnight movement in US yields and crude oil prices. Any escalation in the Russia-Ukraine war will be tracked for cues, dealers said.

Traders also 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 6.45-6.63% and in the five-year segment at 6.18-6.33%.

End

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

Edited by Avishek Dutta

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