Informist, Friday, Dec 15, 2023

By Nishat Anjum

MUMBAI – Overnight indexed swap rates ended off highs as traders received fixed rates, dealers said. The market remained divided on what led to the intraday fall in swap rates. In early trade, traders had unwound their received bets at a profit, dealers said.

The one-year swap rate settled at 6.63%, against 6.64% on Friday. The five-year swap rate ended at 6.18%, compared with 6.21% the previous day.

The five-year contract had touched a high of 6.23% during the day, while the one-year rose to 6.66%.

A section of the market said that a bank received fixed rates in the five-year swap rate to protect its underlying liability and interest payout for its recent debt issuance, dealers speculated.

"There was an issuance of a 7-year infra bond, it is possible that the bank received in swaps to hedge," a dealer at a private bank said. "Because it was a sudden movement from 6.23% to 6.18% (in the five-year swap). Seeing that people received in other contracts too."

Others speculated that offshore traders received fixed rates, ahead of India's inclusion in the JP Morgan Emerging Market Index, dealers said.

Meanwhile, the one-year swap rate, which is more interest rate sensitive, now factors in a rate cut in June by the Reserve Bank of India's Monetary Policy Committee, dealers said. Meanwhile, the deficit in the liquidity system limited the fall in the swap rate.

On Sunday, liquidity in the banking system was in a deficit of 1.51 trln rupees, the highest since Nov 24.

The overnight Mumbai Interbank Offer Rate--the floating leg of the OIS contract--was set at 6.80% today as a large liquidity deficit pushed up the cost of funds in the money market. On Sunday, liquidity in the banking system was in a deficit of 1.51 trln rupees, according to the Reserve Bank of India data.

The rate view eased back home after the US Federal Reserve officials projected a 75-basis-point rate cut by the end of 2024, dealers said. Before the projections by Fed officials, the one-year swap did not factor in any rate cuts, while the two-year swap rate was factoring in a small rate cut, dealers said.

In early trade, traders unwound their received bets at a profit, dealers said. "In my sense, if the momentum is led by offshore traders or their data only, then there will be pain in the new year. We have overdone the receiving before actual inflows, or positive data back home."

OUTLOOK

On Tuesday, swap rates are seen opening steady due to lack of fresh interest rate cues back home and on the global front, 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 6.58-6.75% and in the five-year segment at 6.15-6.28%.
 

End

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

Edited by Akul Nishant Akhoury

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