Informist, Tuesday, Jun 13, 2023
By Kasthuri Akhil
MUMBAI – Most overnight indexed swap rates ended lower today, tracking a slight fall in US Treasury yields, dealers said. Traders avoided placing aggressive bets with the one-year swap rate ending flat as they await US May inflation print, due for release after market hours today.
The market also awaits the US Federal Reserve's monetary policy decision on Wednesday, dealers said.
The one-year swap rate settled at 6.62%, unchanged from Monday, while the five-year swap rate closed at 6.11% against 6.15% on the previous trading day.
"Most of the things are known and have already been priced in, so there's not been much movement in swaps," a dealer at a primary dealership said. "There was just a little receiving because of US yields."
Some traders received fixed rates in the five-year contract, tracking a slight fall in US Treasury yields, dealers said. The yield on the 10-year benchmark US treasury note was at 3.73%, down 3 basis points from the end of Indian market hours on Monday.
During the day, the movement in US Treasury yields was subdued ahead of the US CPI inflation print for May, which is seen crucial to the Fed's rate decision. The headline inflation is expected to decline to 4.1% on year in May from 4.9% in April, according to a Reuters' poll.
The cooling trajectory of inflation will serve as a sign that the Fed’s tightening spree was beginning to take effect, making a case for policymakers to hit the brakes on rate increases for the first time since the Fed set out on the most aggressive rate hike cycle. The US rate-setting panel has hiked rates by 500 bps from near zero since March 2022.
About 74% of Fed futures market sees the Fed keeping the rate unchanged in June at 5.00-5.25%. The remainder expect a 25-basis-point hike.
"A pause alone in this Fed policy will not be of much use. It has been already factored in," a dealer at a private bank said. "The tone of the commentary and the future guidance will be more critical."
OUTLOOK
On Wednesday, swap rates are seen taking cues from the US CPI inflation data for May, due for release later today, dealers said.
Traders will watch out for any sharp movement in US Treasury yields and crude oil prices at open.
The swap rate in the one-year segment is seen at 6.60-6.75%, and the five-year at 6.00-6.25%.
| At 1700 IST | Monday |
1-year OIS | 6.62% | 6.62% |
2-year OIS | 6.27% | 6.31% |
5-year OIS | 6.11% | 6.15% |
2-year MIFOR | 6.70-6.82% | 6.72-6.84% |
5-year MIFOR | 6.71-6.83% | 6.73-6.85% |
End
Edited by Deepshikha Bhardwaj
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