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Informist, Tuesday, Nov. 26, 2024

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended sharply off lows as domestic traders unwound their received-fixed rate bets at levels seen to be lucrative, dealers said. OIS rates, especially the five-year swap, had fallen earlier, tracking an overnight fall in US Treasury yields.

The one-year swap rate ended at 6.54%, against 6.53% on Monday. The five-year swap rate settled at 6.22%, compared to 6.21% on Monday.

At the market opening, swap rates tracked the fall in US Treasury yields. The yield on the 10-year benchmark US Treasury note fell to 4.28% from 4.36% at the close of Indian market hours Monday as investors welcomed US President-elect Donald Trump's pick for secretary of the Treasury, Scott Bessent. Bessent is said to be tough on inflation and market-friendly. Comments by Federal Reserve Bank of Minneapolis President Neel Kashkari on the possibility of a December rate cut by the US Federal Open Market Committee also pulled down US yields. The five-year swap rate fell to the day's low of 6.18%, a fall of 19 basis points from its highest level of 6.37% earlier in November.

"No one thought we'll reach 6.18% (on the 5-year OIS rate) before a rate cut, so there's some profit-booking, some offshore paying also," a trader at a primary dealership said.

After the fall due to early receiving pressure from the fall in US yields, dealers said there were no flows to anchor the market to that level. On Monday, a state-owned power company received fixed rates, pulling swap rates down. Earlier in the month, an infrastructure lending company also received fixed rates to hedge its total return swap contract with a bank, dealers said. Neither had market fundamentals changed in the rate cut view, while offshore traders paid fixed rates as the 10-year US yield also eased off lows, they said.

"There was INR 50 billion worth of receiving yesterday (Monday)... so of course, rates will recover to their normal levels after that," a dealer at a private bank said.

Dealers said they were realigning their positions ahead of India's GDP data for the September quarter, due 1600 IST Friday. Traders widely expect growth to miss the Reserve Bank of India's forecast of 7%. Though most dealers expect the Monetary Policy Committee to cut rates at the earliest only in February, they said that if the GDP print is below or near 6%, chances of a December rate cut could resurface.

OUTLOOK

On Wednesday, swap rates may take cues from the movement of US Treasury yields after the release of the FOMC's November meeting minutes early Wednesday. Domestic traders will look out for further news on geopolitical tensions, both in the Russia-Ukraine conflict and in West Asia, dealers said. 

Traders may remain cautious and avoid large bets before the release of the US Personal Consumption Expenditures data for October, due after market hours Wednesday. The US Personal Consumption Expenditures Index is the Federal Reserve's preferred inflation gauge.

The FOMC minutes and the personal consumption expenditures data could lead to some volatility in swaps during the week, though the impact may be limited as activity by foreign banks in Indian markets has decreased near the year-end, dealers said.

On the domestic front, India's GDP numbers for the September quarter 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 6.51-6.57% and in the five-year segment at 6.19-6.25%.

End

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

Edited by Rajeev Pai

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