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Informist, Wednesday, Nov. 27, 2024

By Srijita Bose

MUMBAI – Overnight indexed swap rates ended lower Wednesday due to an intraday fall in US Treasury yields. The fall was lower in short-term swap rates as the view on rate cuts in India did not change, dealers said. 

The one-year swap rate ended at 6.53%, against 6.54% on Tuesday. The five-year swap rate settled at 6.19%, compared to 6.22% on Tuesday.

The yield on the 10-year US Treasury note fell to 4.27% at 1700 IST from a high of 4.31% earlier ahead of the release of key US economic data post-Indian market hours. Some traders avoided aggressive bets before the US Personal Consumption Expenditures data, which is a preferred measure for inflation by the US Federal Reserve. The second estimate of US GDP for the quarter ended September is also due on Wednesday.

Despite the data points ahead, offshore traders received fixed rates in the OIS market due to the fall in US yields, dealers said. Fears of a rise in crude oil prices also faded after a ceasefire between Israel and the Iran-backed group Hezbollah came into effect Wednesday. Both sides accepted an agreement brokered by the US and France, multiple media reports said, citing US President Joe Biden.

"There was a continuous receiving in swaps in (almost) all the (tenures). It was because of a fall in US yields," a dealer at a primary dealership said. 

Some traders also speculated that domestic corporate entities continued to receive the five-year swap rate above 6.20%. A company in the power finance sector and an infrastructure lender were speculated to be hedging their upcoming bond issuances in the five-year OIS over the past week, which may have continued on Wednesday, dealers said.

Domestic traders, who had paid fixed rates earlier in the week, also unwound those bets before the US data and its potential impact on the US rate view, dealers said. The CME FedWatch tool currently shows around a two-thirds chance of a 25-basis-point rate cut by the US Federal Open Market Committee in December, with the remaining betting on no change in rates.

"Some domestic traders are squaring off their bets before (India's) GDP data as the event is approaching closer," a dealer at a private bank said. India's GDP data for the September quarter will be released at 1600 IST on 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 Thursday, swap rates may take cues from the movement of US Treasury yields after the release of US inflation and growth data post-market hours. Domestic traders will also look out for further news on geopolitical tensions in the Russia-Ukraine conflict, dealers said. 

Traders may remain cautious and avoid large bets before the release of India's Jul-Sept GDP data on Friday. Incremental bets may, however, rise as the data gets closer, dealers said. The data will provide a likely trajectory of the domestic rate-cut cycle. According to an Informist poll, GDP growth is likely to have moderated to a six-quarter low of 6.5% in Jul-Sept.

The swap rate in the one-year segment is seen at 6.50-6.57% and in the five-year segment at 6.15-6.25%.

End

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

Edited by Saji George Titus

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