India IRS Review
Down as traders unwind paid positions before FOMC outcome
This story was originally published at 19:37 IST on 18 December 2024
Register to read our real-time news.Informist, Wednesday, Dec. 18, 2024
By Cassandra Carvalho
MUMBAI – Overnight indexed swap rates ended lower due to an overnight fall in US Treasury yields ahead of the US Federal Open Market Committee's rate decision early on Thursday, dealers said. Traders also unwound some paid positions placed earlier, ahead of the FOMC outcome. The one-year swap rate ended at 6.46%, down from 6.47% on Tuesday. The five-year swap rate settled at 6.10%, down from 6.14% the previous day.
The yield on the 10-year US Treasury note fell to 4.40% at 0900 IST from 4.43% at 1700 IST on Tuesday. While the US FOMC is widely expected to cut rates by 25 basis points later this week, traders await the outlook on US rates after the policy. In the Summary of Economic Projections, dealers fear that US Federal Reserve officials would signal only a shallow rate cut cycle or, in the worst case, no rate cuts in 2025. Comments by Fed officials will also be looked at as some traders expect a "hawkish cut" on Thursday.
In the swap market, some traders received fixed rates to offset their paid positions placed earlier, dealers said. The jump in swap rates on Tuesday was unexpected, which led to traders booking some profits on Wednesday, dealers said.
"Some profit-booking had kept rates lower earlier in the day. Yesterday (Tuesday) I think some corporate was paying, so receiving is there to offset that," a trader at a primary dealership said.
The notional volume across swap contracts was low ahead of the FOMC outcome. Dealers also said that tightening liquidity contributed to low volumes as the overnight Mumbai Interbank Offer Rate – the benchmark floating rate for OIS contracts – was set at 6.82% Wednesday, higher than the RBI's Marginal Standing Facility rate. The liquidity deficit of INR 1.45 trillion on Tuesday translated to high overnight rates as the cash crunch pushed up the cost of borrowing.
"Liquidity (deficit) hasn't affected OIS directly but MIBOR is high now, so swaps are seeing upward pressure," a dealer at a private bank said.
OUTLOOK
On Thursday, swap rates will take cues from overnight movement in US yields after the FOMC's policy statement. While traders have already priced in a 25-basis-point cut by the FOMC on Thursday, traders will look for any change in the committee's outlook on interest rates.
Fears that the FOMC may project only two or three rate cuts instead of four next year have driven US yields up to November's levels. A slower pace of rate cuts in the US could delay the MPC's decision to cut rates from the currently expected timeline of February.
Tight liquidity conditions in the banking system may result in upward pressure on swap rates. The swap rate in the one-year segment is seen at 6.40-6.52% and in the five-year segment at 6.05-6.15%.
| At 1700 IST | TUESDAY |
1-year OIS | 6.46% | 6.47% |
2-year OIS | 6.18% | 6.20% |
5-year OIS | 6.10% | 6.13% |
2-year MIFOR | 6.53-6.65% | 6.53-6.60% |
5-year MIFOR | 6.71-6.83% | 6.71-6.80% |
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Avishek Dutta
For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.
Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.
Informist Media Tel +91 (22) 6985-4000
Send comments to feedback@informistmedia.com
© Informist Media Pvt. Ltd. 2024. All rights reserved.
To read more please subscribe
Share this Story:
