Informist, Thursday, Sep 28, 2023
By Nishat Anjum
MUMBAI – Overnight index swap rates ended sharply higher as traders paid fixed rates across contracts, tracking a surge in US Treasury yields and crude oil prices, dealers said.
The one-year swap rate settled at 7.12%, the highest level since Mar 8, against 7.07% at close on Wednesday. The five-year swap rate ended at 6.85%, the highest level since Sep 11, against 6.76% on the previous day.
"Both, offshore and onshore traders paid heavily today," a dealer at a private bank said. "It was just one of those days, where you know there is going to be paying throughout the day, even before the market opens."
The yield on the benchmark 10-year US Treasury note touched the highest level since October 2007 after an unexpected increase in US durable goods orders in August. This further cemented expectations of higher interest rates for a longer period of time in the world's largest economy.
The yield on the 10-year US bond rose to 4.65% today, as against 4.51% at the time of Indian market hours on Wednesday.
In the US, data from the Commerce Department showed orders for durable goods rose 0.2% on month in August against a 0.5% fall forecast by a Reuters' poll. Orders declined 5.6% on month in July.
Non-defence capital goods, excluding aircraft, a proxy to gauge business spending plans, rose 0.9% on month from a revised 0.4% gain in the preceding month, marking the highest increase in this segment since January. On a year-on-year basis, orders rose 2.1%.
The strong gains in durable goods and manufacturing orders reaffirmed underlying resilience in the world's largest economy, adding to the inflationary fears and higher interest rate scenario going forward.
Meanwhile, crude oil prices also surged 3% after data showed US crude stocks fell more than expected, intensifying worries about the commodity's supply prospects going forward.
Crude stocks in the US declined by 2.2 mln barrels to 416.3 mln bbl in the week ended Saturday, in contrast to a 320,000-bbl fall projected by analysts in a Reuters' poll.
Brent crude oil future for December delivery was at $95.09 per bbl, as against $93 a bbl at the time of Indian market close on Wednesday. An uptick in crude oil prices adds to the imported inflation fears, dealers said.
"Crude always act as a secondary actor. But today, as it moved towards $100 per bbl, then obviously we expected this kind of paying momentum," a dealer at another private bank said. "Also, domestically, there was nothing positive to actually counter it."
OUTLOOK
On Friday, swap rates are seen opening steady due to lack of cues on domestic interest rates, dealers said. Traders may take cues from US Fed Chair Jerome Powell's speech later in the day.
Market participants also await the US Core Personal Consumption Expenditures price index, a key inflation reading, which is due to be out on Friday. The inflation data may give insight into the rate trajectory in the world's largest economy, dealers said. Currently, the Federal funds target range stands at 5.25-5.50%.
According to the CME Fedwatch tool, close to 20% Fed fund futures traders see the likelihood of a rate hike at the Fed's policy meeting in November.
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 6.90-7.20% and in the five-year segment at 6.70-6.90%.
| At 1700 IST | Wednesday |
1-year OIS | 7.12% | 7.07% |
2-year OIS | 6.89% | 6.82% |
5-year OIS | 6.85% | 6.76% |
2-year MIFOR | 7.23-7.35% | 7.18-7.26% |
5-year MIFOR | 7.24-7.36% | 7.18-7.26% |
End
US$1 = 83.19 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Maheswaran Parameswaran
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