Informist, Monday, Nov 6, 2023

By Nishat Anjum

MUMBAI – Overnight indexed swap rates ended marginally down today as traders received fixed rates tracking a fall in US Treasury yields, dealers said. The fall was limited due to lack of fresh cues on interest rates, both on the domestic and global front.

The one-year swap rate settled at 6.88%, compared with 6.89% on Friday. The five-year swap rate ended at 6.57%, against 6.59% the previous day.

"At this point the 5-year swap rate should be below 6.50%. But, there was some paying interest since morning," said a dealer at a private bank. "If the 10-year US yield touches 4.50%, I do not think we will see much change. It will hover somewhere around 6.50% only."

The yield on the benchmark 10-year US Treasury note fell to 4.60%, from 4.64% at close of Indian markets on Friday. The yield on the 10-year US Treasury note fell to a five-week low on Friday after data showed jobs in the US grew slower than expected in October.

US Labor Department data showed that non-farm payrolls in the US rose by 150,000 jobs in October, lower than economists' expectations of a 180,000 rise. Data for September was also revised lower to 297,000 new jobs instead of 336,000 as earlier reported. Additionally, the two-year yields reached the lowest level on Friday since early September.

On Wednesday, after the outcome of the US Federal Open Market Committee's policy meeting, Federal Reserve Chair Jerome Powell said that if high yields persist, the central bank might not need to raise rates further. Such elevated yields could independently slow the economy and reduce inflation without the Fed having to increase rates again.

Moreover, on Friday, Richmond Fed President Thomas Barkin said that weaker jobs data is helping central bankers who are trying to lower inflation.

According to the CME FedWatch tool, there is now only a 9.8% chance of the US Federal Reserve raising its benchmark rates in December, down from 20% on Thursday.

Short-term swap rates also eased somewhat, though the fall was limited by high overnight rates, dealers said. The Mumbai Interbank Offer Rate--the floating leg of the swap contract--was fixed at 6.85% today, well above the policy repo rate of 6.50%.

"It is unlikely that the Reserve Bank of India will let liquidity be in surplus for a long period of time," a dealer at another private bank said. "As liquidity remains tight, it is difficult to get the one-year paper to move from here."

OUTLOOK

On Tuesday, OIS rates may open steady as traders may avoid aggressive bets due to lack of significant domestic cues, dealers said. A sharp move in US Treasury yields and crude oil prices may lend cues at the opening.

The swap rate in the one-year segment is seen at 6.85-7.00% and in the five-year segment at 6.50-6.75%.

End

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

Edited by Ashish Shirke

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