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Informist, Friday, Dec. 13, 2024

By Srijita Bose

MUMBAI – Overnight indexed swap rates in most tenures ended steady as traders avoided big bets in the absence of fresh cues on interest rates. Traders chose to pay fixed rates in the 2-year segment to factor in the growing scepticism about the depth of the rate cut cycle in the US, dealers said. 

The one-year swap rate ended at 6.41%, flat against Thursday. The five-year swap rate settled at 6.04%, the same as the previous day.

The US Producer Price Index for November rose 0.4%, higher than a Dow Jones forecast of 0.2%. The producer price reading stoked fears of sticky inflation disrupting the Federal Open Market Committee's rate cut trajectory. While traders have priced in a 25-basis-point cut by the Federal Open Market Committee next week, January is expected to see a pause in rate cuts. 

Further, weekly jobless claims in the US rose to the highest level since October, showing signs of a slowing labour market. However, analysts said it could have been an outlier due to the Thanksgiving holiday in the US, dealers said.

"Traders are waiting for further cues from the US and the FOMC meeting is also coming in next week, so before that they are tracking the rise in US yields," a dealer at a private bank said. 

Offshore traders paid fixed rates as they reassessed hopes of a rate cut in the US in 2025, dealers said. The rise in swap rates was, however, limited as US yields remained largely unchanged throughout the day. Some receiving interest also came in after the ease in CPI inflation, which limited the rise. 

On the domestic front, the latest inflation print turned out to be in line with expectations. Data released Thursday showed India's CPI inflation for November eased to 5.48% from the 14-month high of 6.21%, a month ago. Even though the inflation print raised expectations of a rate cut in February, traders shied away from building strong bets on rate cut anticipation until further cues from both the US and India came in. Traders had already priced in nearly a 75 bps cut by the MPC in 2025, which remained unchanged. 

"Sure the (India) CPI was a relief, but there is still some time to bet on February, plus people had already priced in that and how the new (Reserve Bank of India) Governor (Sanjay Malhotra) will be on inflation is still left to be seen even though he is coming in from the government side," a dealer at a primary dealership said. 

OUTLOOK

Domestic financial markets are closed on Saturday. On Monday, swap rates will take cues from the overnight movement in US yields, dealers said.

Traders will closely watch the movement in US yields ahead of the FOMC's policy statement early Thursday. Some bets could also be placed on India's rate cut in February during the day.

Domestic traders will also look out for further news on geopolitical tensions over the weekend, dealers said. The swap rate in the one-year segment is seen at 6.30-6.50% and in the five-year segment at 5.90-6.10%.

End

Edited by Deepshikha Bhardwaj

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