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Informist, Thursday, Nov. 28, 2024

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates ended slightly lower due to a fall in global bond yields, which led offshore traders to receive fixed rates, dealers said. Traders also received fixed rates due to constant inflows from corporate houses looking to hedge their bond issuances.

The one-year swap rate ended at 6.51%, against 6.53% on Wednesday. The five-year swap rate settled at 6.17%, compared to 6.19% the previous day, ending at its lowest in over a month.

US yields eased after GDP and inflation data, released Wednesday, were on expected lines. US GDP grew 2.8% on year in Jul-Sept, unchanged from its previous estimate, while the US Federal Reserve's preferred inflation gauge was in line with Dow Jones' estimate. Core personal consumption expenditure inflation was 2.8% in October compared with 2.7% in September.

The yield on the 10-year US Treasury note settled at 4.26% on Wednesday, from 4.28% at 1700 IST, while the CME FedWatch tool showed bets on a US rate cut in December firmed up. There was no intraday cue as US markets are shut for Thanksgiving. The 10-year US yield has fallen over 20 basis points from highs earlier in November. In Asia, the Bank of Korea's surprise rate cut early Thursday pulled down bond yields in the region, prompting foreign banks to receive fixed rates in countries such as India, dealers said.

"There's been a softening of yields both globally and in Asia," a dealer at a primary dealership said. "Offshore flows have been coming in, especially today (Thursday), but also domestic corporates have ensured a clean fall below 6.22% (on the five-year swap). Now that the level is broken, the market is looking for the next trigger."

This could come in the form of India's GDP data at 1600 IST on Friday. Short-term swap rates have been anchored, despite a rise in overnight benchmark rates, due to growing expectations that September quarter growth would suggest a slowing economy that requires rate cuts to gain economic momentum, dealers said. 

According to an Informist poll, GDP growth in Jul-Sept is likely to have moderated to a six-quarter low of 6.5%. Some traders expect an even lower print. 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 near or below 6%, chances of a December rate cut could resurface. The RBI has projected Jul-Sept GDP growth at 7%. 

Meanwhile, 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 Thursday, dealers said. However, dealers said a further fall in OIS rates could only be possible after a push towards rate cuts in India from the weakening growth.

"Just like the momentum was earlier on the paying side, now people have a preference for unwinding now (paid fixed rate bets)," a dealer at a private bank said. "A lot of flow has come in to position ahead of the GDP data." 

OUTLOOK

On Friday, OIS rates may open steady ahead of India's Jul-Sept GDP release at 1600 IST, dealers said. Intraday bets on the rate cue from the print will likely determine the direction of swap rates. 

Domestic traders will also look out for further news on geopolitical tensions, dealers said. Reports on Thursday said Russia attacked Ukraine's energy facilities. Meanwhile, the progress of the ceasefire between Israel and Iran-backed Hezbollah would also be watched, to see if the peace deal would hold, dealers said.

The swap rate in the one-year segment is seen at 6.43-6.57% and in the five-year segment at 6.12-6.25%.

End

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

Edited by Saji George Titus

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