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Informist, Friday, Nov. 22, 2024

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended steady due to a lack of significant cues on interest rates. Short-term swap rates inched up due to a rise in short-term US Treasury yields early in the day, dealers said.

The one-year swap rate ended at 6.56%, against 6.54% on Thursday. The five-year swap rate settled at 6.26%, compared to 6.25% the previous trading day.

At the Indian market open, swap rates tracked a rise in US treasury yields. While the yield on the 10-year US Treasury note was little changed from Thursday, the 2-year US yield jumped to 4.35% from 4.31%. Consequently, traders paid fixed rates in India's OIS rates maturing up to one year.

The weekly initial jobless claims in the US fell by 6,000 to a seasonally adjusted 213,000, a seven-month low and below the forecast of 220,000 polled by Reuters, suggesting that job growth had recovered after disruptions from hurricanes and labour strikes last month. Market participants are still divided in their opinion about a rate cut by the US Federal Open Market Committee in December. The CME FedWatch tool shows only 60% of traders expect a 25 basis point rate cut in December, while 40% see the committee staying pat. 

Traders also paid fixed rates to protect their underlying gilt holdings, as bond prices fell due to the fresh supply of INR 320 billion at the weekly gilt auction. Offshore traders likely unwound their received fixed rate positions as the rising dollar index caused the rupee to depreciate to a record low of INR 84.50 against the US dollar, dealers said. Exposure to India's rates market has become much less lucrative amid the recent strength in the dollar index, which has exerted pressure on the rupee after over a year of limited volatility and depreciation.

However, paying pressure on OIS rates subsided as the auction results were not as bad as feared and US yields eased intraday.

"We had a few PMI data from Europe and the UK, which came quite lower than expected, which is why even our OIS market has reacted to the same data, and the auction came in how our market was expecting," a dealer at a private bank. 

Moreover, domestic traders continued receiving fixed rates as the five-year OIS above 6.25% was considered lucrative. Traders also speculated an Indian financial institution received fixed rates to hedge its outstanding bonds, dealers said.

"I'm hearing the market rumours that there is some form of receiving... for TRS (total return swaps)," a trader at a primary dealership said. Other dealers said the impact of the domestic entities receiving fixed rates faded and volumes were too low to suggest a sizeable amount of flows took place.

OUTLOOK

The swaps market is shut on Saturday. On Monday, swap rates may take cues from the movement of US Treasury yields and crude oil prices over the weekend. 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 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 likely trajectory of the domestic rate cut cycle.

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 Saji George Titus

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