Informist, Wednesday, May 10, 2023
By Kasthuri Akhil
MUMBAI – Overnight indexed swap rates ended largely unchanged as traders kept to the sidelines awaiting the release of US Inflation data for April, due 1800 IST today, dealers said.
The one-year swap rate settled at 6.63% today, against 6.62% on Tuesday. The five-year swap rate ended at 6.06%, against 6.05% the previous day.
Traders in the OIS market tracked the US Treasury yield movement tick-by-tick, which too moved within a very narrow range during the day amid rising anticipation for the CPI data release. The yield on the benchmark 10-year US Treasury bond inched down 2 basis points to 3.50% from Tuesday’s close.
Economists expect US inflation to have increased 0.4% on month in April, and 5% on-year, a poll by Dow Jones showed. Meanwhile, core inflation, which excludes food and energy components, is expected to have climbed 0.4%.
Today swap rates with tenures of two-year and less saw a rise in the ‘notional volumes traded’, unlike the last few days, where traders refrained from placing aggressive bets in the short-term swap rates due to lack of clarity on the timeline of future rate cuts.
“Tight liquidity in the system caused the cut-offs on Treasury bills today to be on the higher side. So traders must have come to hedge in the OIS market in the one-year segment,” a dealer at a private bank said.
The Reserve Bank of India set the cut-off yield on the 91-day T-bill at 6.95%, 7.03% on the 182-day T-bill, and 7.02% cut-off yield on the 364-day T-bill, at the auction today.
Meanwhile, the domestic inflation figures for April are scheduled for release on Friday. Traders broadly expect India’s CPI data to come in at 4.8-5.0% in April, down from 5.66% in March, dealers said.
Traders lacked clarity about the policy rate action by the central bank in the near term. According to dealers, repo rate cuts by the end of the calendar year are likely only if domestic economic growth remains resilient, in line with RBI projections, and headline inflation remains well within the 2-6% tolerance band.
“Although the OIS curve is discounting rate cuts from December, we expect rate cuts to start only in February,” a dealer at a primary dealership said. “But first the Reserve Bank of India will give liquidity in the system and only then will it go rate cuts.”
OUTLOOK
On Thursday, swap rates are seen taking cues from the US’ April inflation print, due 1800 IST today, dealers said.
Traders may 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 6.57-6.68%, and the five-year at 5.90-6.10%.
End
Edited by Tanima Banerjee
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