Informist, Tuesday, Mar 21, 2023
By Kasthuri Akhil
MUMBAI – Overnight indexed swap rates ended higher as traders paid fixed rates, tracking a rise in US Treasury yields. The one-year swap rate settled at 6.75%, against 6.70% on Monday. The five-year swap rate ended at 6.29% against the previous day’s close of 6.25%.
The yield on the benchmark 10-year US Treasury note rose to 3.55% towards the end of Indian market hours from 3.38% at close of Indian markets on Monday. The rise in US Treasury yields came as worries surrounding stability of the global banking system eased after the state-backed takeover of Credit Suisse by UBS Group AG.
According to the CME Group’s FedWatch tool, about 86% of Fed funds rate traders are now factoring in a 25-basis-points rate hike by the US Federal Reserve on Wednesday. The rest do not expect any change in the Fed funds rate, which is currently at 4.50-4.75%. The decision of the US rate-setting panel late on Wednesday is expected to provide clarity on the interest rate hike view.
“The market has already priced in a hike of 25 bps this time, but post that what will be important is to watch out for the dot plot chart,” a dealer at a primary dealership said. “It’ll give a clear picture about where do the policymakers see the terminal repo rate and the market will readjust accordingly.” The US Federal Open Market Committee’s dot plot is a chart that illustrates each committee member’s projection of where the federal funds rate will be at the end of a particular period.
In a speech before the Senate Banking Committee in early March, Fed Chair Jerome Powell had said that the federal funds rate was likely to top out at a higher level than expected, taking the strong economic data into account.
“Nothing can be said for sure about whether there will be a pause or a 25-bps hike before the event actually happens,” a dealer at another primary dealership said. “If there is a 25-bps hike, the swap rates could go to as high as 6.45%, and if there is a pause, then they could go back to around 6.20% levels.”
Back home, traders expect the Reserve Bank of India’s Monetary Policy Committee to hike the repo rate by 25 bps in April, taking the repo rate to 6.75%, which may only change following the Fed’s rate decision, dealers said.
OUTLOOK
Money markets will be shut on Wednesday on account of Gudi Padwa.
On Thursday, swap rates are seen taking cues from the outcome of the US FOMC meeting, due at midnight on Wednesday, dealers said. Traders may also 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 6.55-6.85%, and the five-year at 6.15-6.50%.
End
Edited by Avishek Dutta
For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.
Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.
Informist Media Tel +91 (22) 6985-4000
Send comments to [email protected]
© Informist Media Pvt. Ltd. 2023. All rights reserved.
Source: Cogencis
