Informist, Thursday, Dec 7, 2023
By Nishat Anjum
MUMBAI – Overnight indexed swap rates ended lower as traders received fixed rates, tracking a fall in US Treasury yields, dealers said. However, traders avoided aggressive bets on caution ahead of the outcome of the Reserve Bank of India's Monetary Policy Committee's three-day meeting, due Friday.
The one-year swap rate settled at 6.84%, against 6.86% on Wednesday. The five-year swap rate ended at 6.44%, compared with 6.47% the previous day.
"There is data due in the US on Friday. Then we have the US Federal Reserve meet, domestic inflation next week. Before all of this is out, it is unlikely that anybody will be aggressive before that," a dealer at a private bank said. The US Federal Reserve is scheduled to meet on Tue-Wed.
During the day, yield on the benchmark 10-year US Treasury note fell to 4.12%, as against 4.20% at the end of Indian market hours on Wednesday. US yields fell after the ADP National Employment Report showed that private payrolls in the US rose by 103,000 jobs last month, below the forecast of 130,000 job gains.
Following the private forecaster's data, investors priced in a weak payrolls number from the US government, due to be released on Friday. The November data is expected to show that employers added 180,000 jobs during the month, according to the median estimate of economists polled by Reuters.
Meanwhile, back home, the market widely expects the panel to keep the policy repo rate and policy stance unchanged for the fifth consecutive time at the outcome of its meeting on Friday, even though higher food prices pose an upside risk to inflation, dealers said. Currently, the repo rate stands at 6.50%, while the policy stance is "withdrawal of accommodation".
"In the light of strong GDP data and an uptick in inflation in coming months, why would the RBI take the risk of sounding dovish," a dealer at a primary dealership said. "Moreover, OIS has already outperformed gilts, so there is not much scope in spreads in short-term there."
According to an Informist poll, most respondents expect the RBI to revise its 2023-24 (Apr-Mar) GDP forecast higher by up to 30 basis points from the current projection of 6.5% after the GDP grew at a robust 7.6% in Jul-Sep.
The one-year swap rates had low volume as traders have not priced in rate cuts until Oct-Dec next year, while during the day traders received fixed rates in the two-year contract, which had priced in over 50 bps of rate cuts over 24 months. Short-term swap rates are interest rate sensitive.
Traders also keenly await the central bank's commentary on the liquidity front, dealers said. A section of the market expects the Reserve Bank of India to reiterate that it may explore open market operation sales auctions to manage liquidity.
This comes against the backdrop of expected foreign portfolio investment inflows ahead of India's inclusion in the JP Morgan Emerging Market index in June, as well as expectations of government expenditure prior to the General elections in 2024, dealers said.
Another section sees the RBI hinting at a softer monetary policy outlook, as rates have peaked in the US, and there are no more fears of a rate hike back home, dealers said.
OUTLOOK
On Friday, swap rates are seen opening steady as traders remain cautious ahead of outcome of the three-day meeting of the Monetary Policy Committee, scheduled at 1000 IST, dealers said.
Traders may also take cues from the RBI Governor Shaktikanta Das's statement, dealers said.
A sharp move in US Treasury yields and crude oil prices may also lend cues at the opening.
The swap rate in the one-year segment is seen at 6.78-7.00%, and in the five-year segment at 6.40-6.60%.
| At 1700 IST | WEDNESDAY |
1-year OIS | 6.84% | 6.86% |
2-year OIS | 6.53% | 6.56% |
5-year OIS | 6.44% | 6.47% |
2-year MIFOR | 6.67-6.79% | 6.65-6.77% |
5-year MIFOR | 6.79-6.91% | 6.79-6.91% |
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Deepshikha Bhardwaj
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