More Stories

Informist, Tuesday, Dec. 31, 2024

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates ended on a mixed note Tuesday. While most swap rates inched lower, traders paid fixed rates in the three-month segment, betting on tight liquidity conditions to persist into January, while also prevailing at the end of the financial year in March, dealers said.

The one-year swap rate ended at 6.51%, against 6.52% on Monday, falling 13 basis points this year. The five-year swap rate settled at 6.20%, against 6.22% the previous day, and 2 bps lower in 2024. Swap rates fell much less than the 10-year benchmark gilt yield, which was down 42 bps for the year, as the policy repo rate was not cut from 6.50%.

"In the three-month segment, banks are paying because of the year-end view for March, expecting the call rate to spike again," a dealer at a foreign bank said. "There is a lot of liquidity positioning that has to be done with the short-term swaps around this time, which is why there is so much volume. Until we move away from the call money-based benchmarks, this is bound to happen." The three-month swap rate rose 4 basis points to 6.69% Tuesday, with trade volume the highest in two weeks.

The overnight Mumbai Interbank Offered Rate is the current benchmark for money market rates, and the floating leg of the OIS contract. The overnight MIBOR rate was pegged at 7.15%, the highest since Mar. 28. In October, the committee on the MIBOR benchmark recommended that Financial Benchmarks India Ltd. construct a new overnight market benchmark based on secured money market rates. 

The Reserve Bank of India earlier this month proposed introducing a new benchmark, the Secured Overnight Rupee Rate, or the SORR, to further develop the interest rate derivatives market and improve the credibility of interest rate benchmarks. Expecting that MIBOR rates will rise at the end of March again, when liquidity is typically the tightest due to credit outlay by banks at the year-end, traders paid fixed rates in the three-month swap contract, while receiving fixed rates in other tenures, dealers said.

Meanwhile, the five-year OIS rate fell due to a fall in US Treasury yields. The yield on the 10-year US Treasury note fell to 4.52% at 1700 IST on Tuesday from 4.60% on Monday. US yields fell sharply after the Chicago Purchasing Managers' Index print was much lower than expected, spurring expectation that the US Federal Open Market Committee may take stronger action to boost economic activity. Data also showed that US pending home sales rose in November, adding to the fall in US yields, dealers said.

The fall was not significant as activity by foreign traders remained limited at the year-end, dealers said. "There is no significant offshore activity. Most of it is domestic houses receiving because of the US yields falling, because ultimately some flows should come in in the next few days on the receiving side," a dealer at a primary dealership said.

OUTLOOK

On Wednesday, swap rates will take cues from the movement in US yields, dealers said. Activity from foreign banks and foreign portfolio investors may increase after the annual lull, as they return to trading desks in the new year. 

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 Deepshikha Bhardwaj

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 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.