Informist, Wednesday, Sep 22, 2021
By Nikhil Patwardhan
MUMBAI – Overnight indexed swap rates ended steady and trade volumes were low because dealers avoided placing large bets ahead of the outcome of the US Federal Reserve's bi-monthly monetary policy meeting, which will be detailed later today.
The one-year rate ended at 3.87% against Tuesday's close of 3.86%, while the five-year swap rate ended at 5.14%, unchanged against the previous close.
The outcome of the meeting followed by US Federal Reserve Chair Jerome Powell's address today would be monitored closely by global investors as he is expected to provide clarity over the central bank's tapering of its $120 bln worth of monthly asset purchases and an eventual timeline of an interest rate hike.
Last month, at the Jackson Hole symposium, Powell said the tapering could begin later this year, though investors keenly await the details of the timeline and the quantum of reduction on asset purchases that the central bank may hint at today's outcome, dealers said.
The yield on US Treasury notes rose slightly on Tuesday as the Federal Open Market Committee began its two-day meeting. The yield on the 10-year US Treasury note ended 2 basis points higher at 1.33%. Today, the yield was steady.
"Swap rates have corrected quite a bit since the start of July as US yields have fallen and stayed within this 1.20-1.40% range," said a dealer with a primary dealership.
"Since then, we have digested one US monetary meet which did not give any particular cues as such on rates in near-term, one RBI policy and Powell and (RBI Governor Shaktikanta) Das' comments at various media briefings where they reiterated that any normalisation would be very gradual. I guess some dealers are of the view that this unwinding is slightly overdone because of all of this, and fresh cues on rates would be taken from Powell's comments at this meeting followed by Das' comments next month."
The RBI's Monetary Policy Committee is scheduled to meet in early October for its bi-monthly policy review. The central bank is not expected to change its accommodative stance and keep benchmark policy rates unchanged now that the CPI inflation print over the last two months has fallen within the RBI's target band of 2-6%, dealers said.
Moreover, GDP growth in Apr-Jun, too, was slightly lower than expected, which could prompt the central bank to prolong its policy support for longer to ensure that growth revives on a durable basis, dealers said.
But dealers would keep an eye on Das' comments in terms of where the governor sees inflation and growth in the near term.
"Das' comments and other members comments would be closely watched because I don't think any other surprises are expected from the policy," said a dealer with a private bank.
"Even after the last policy, there was some ambiguity over when the RBI would actually start normalisation which had got dealers in troubled waters, albeit for a short period of time. So, I believe there will be caution ahead of the policy."
OUTLOOK
On Thursday, OIS rates will take cues from the outcome of the US Federal Reserve's monetary policy meeting.
Comments by US Federal Reserve Chair Jerome Powell would be closely monitored by dealers and if Powell hints at any earlier-than-expected normalisation of the US central bank's policy stance, swap rates may surge sharply as dealers may aggressively pay fixed rates since the view on global interest rates in the near term might change.
However, lack of cues on the domestic front are seen keeping dealers to the sidelines and rates are now seen trading in a narrow band in the near term, in the run-up to the RBI's monetary policy meeting scheduled for early October.
Any sharp movement in crude oil prices and US Treasury yields overnight may lend cues at open.
The swap rate in the one-year segment is seen at 3.80-4.00%, and in the five-year at 5.10-5.35%.
| At 1530 IST | TUESDAY |
1-year OIS | 3.87% | 3.86% |
2-year OIS | 4.28% | 4.27% |
5-year OIS | 5.14% | 5.14% |
2-year MIFOR | 4.73-4.89% | 4.74-4.94% |
5-year MIFOR | 5.66-5.82% | 5.66-5.82% |
End
US$1 = 73.87 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Avishek Dutta
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