Informist, Thursday, Jan 11, 2024

By Nishat Anjum

MUMBAI – Overnight indexed swap rates ended little changed as traders refrained from placing aggressive bets on caution ahead of the US CPI inflation data, due at 1900 IST, dealers said.

The one-year swap rate settled at 6.65%, unchanged from Wednesday. The five-year swap rate ended at 6.22%, against 6.21% on the previous trading day.

"The market has not been very gung-ho in swap rates, which makes sense as swaps have been exhausted on both ends," a dealer at a primary dealership said. "In the five year, both 6.20% and 6.30% are difficult to breach on a sustainable basis."

According to a Dow Jones poll, US CPI inflation for December is expected to rise to 3.2% on year against 3.1% in November. However, core CPI inflation for December may slow to 3.8% on year, against 4.0% the previous month.

During the day, traders received fixed rates tracking an intraday fall in US Treasury yields, dealers said. Yield on the 10-year benchmark US Treasury note fell below the psychologically crucial 4% level. The yield on the 10-year benchmark US Treasury note fell to 3.99% during the day, against 4.03% in early trade. 

Both, the volume and movement in swap rates up to one year was limited ahead of the key inflation triggers as the domestic rate view was unchanged due to a lack of cues on interest rates, dealers said.

Traders expect the overnight Mumbai Interbank Offer Rate--the floating leg of the OIS contract--to move to the 6.50-6.60% band by February as the Reserve Bank of India eases monetary policy, followed by a change in stance in April and a 25-bps repo rate cut in June, dealers said. Today, the MIBOR rate was pegged at 6.85%.

"If you see, both gilts and swaps have moved only 1-2 basis points during the day. The momentum has been much more positive in the bonds because of a favourable demand-supply scenario going forward," a dealer at a private bank said. "But these are not the factors for swaps, so the movement has been limited here."

OUTLOOK

On Thursday, traders may take cues from the US CPI inflation reading for December, due after market hours today, dealers said.

A sharp move in US Treasury yields or crude oil prices may also lend cues at the opening.

The swap rate in the one-year segment is seen at 6.55-6.70% 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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