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Informist, Friday, Dec. 27, 2024

By Srijita Bose

MUMBAI – Overnight indexed swap rates ended steady in choppy trade due to a lack of fresh interest rate cues. An overnight fall in US Treasury yields led to swap rates easing early before the fall in the rupee to a record low led to traders paying fixed rates in large quantums, dealers said.

The one-year swap rate ended at 6.53%, flat versus Thursday. The five-year swap rate settled at 6.23%, also unchanged from the previous close.

During early trade, OIS rates were down tracking a slight overnight ease in US Treasury yields, dealers said. The yield on the 10-year US Treasury note eased to 4.58% at 0900 IST from 4.62% at the end of Indian market hours Thursday. US yields, which rose to a fresh multi-month high on lower-than-expected weekly unemployment claims, fell because of robust demand at an auction later.
 

Though the slight fall helped, traders do not expect US yields to cool off in a hurry in the near term, as US President-elect Donald Trump is due to assume office on Jan. 20. Trump's policies, such as imposing fresh tariffs and tax cuts, are seen as pushing up US yields due to higher inflation and fiscal deficit.

"The receiving bias in the morning was short-lived and limited – one because domestic traders are waiting for more firm indicators on the rate cut, but also because the fall (in US yields) is not sustainable and is seen rising before Trump comes," a dealer at a private bank said. "The receiving bias was from a single corporate, I think."

As the day progressed, however, the fall in the rupee to record lows led traders to pay fixed rates on the one-year swap, dealers said. The rupee fell to a record low of 85.8075 a dollar, down over 50 paise on the day. Ultimately, the Reserve Bank of India's dollar sales in defence of the domestic unit helped it recover somewhat, though the rupee ended at a record closing low of 85.5325 a dollar.

"There was a panic in the market as the rupee slid, triggering a panic-selling among traders as the RBI (Reserve Bank of India) did not intervene initially and let the rupee fall," a dealer at a primary dealership said. "If the rupee keeps falling, it's a different ballgame altogether, plus the uncertainty on fundamentals (such as growth and inflation) is still there." 

OUTLOOK

Swaps are not traded on Saturday. On Monday, swap rates will take cues from the movement in US yields, dealers said. The pressure on the currency could also lead to volatility in rates during the day. 

Trade volumes could be low during the week as several traders are on leave ahead of the New Year. Activity from foreign banks and foreign portfolio investors could also be muted as they close their accounts at the end of the year, dealers said.

Tight liquidity conditions in the banking system may result in upward pressure on short-term swap rates. The swap rate in the one-year segment is seen at 6.45-6.65% and in the five-year segment at 6.15-6.30%.

End

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

Edited by Saji George Titus

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