Informist, Monday, Jun 5, 2023
By Anjali
NEW DELHI – Overnight indexed swap rates ended higher today tracking an overnight rise in US Treasury yields, dealers said. The swap rates moved in a narrow range after rising initially.
“There was nothing major today, people only tracked US yields,” a dealer at a private bank said. “There was paying between 6.04% and 6.07% (5-year swap rate), and it pretty much moved in that range.”
The one-year swap rate ended at 6.59%, against 6.56% on Friday, while the five-year swap rate ended at 6.07% against the previous day’s close of 6.00%.
Yield on the benchmark 10-year US Treasury note rose to 3.75% in Asian trade today from 3.60% at the time of Indian market close on Friday.
US Treasuries rose on Friday as labor department data showed that nonfarm payrolls rose more than anticipated in May, which may put pressure on the Federal Reserve to raise interest rates later this month. Nonfarm payrolls rose by 339,000 jobs last month. Economists polled by Reuters had forecast an increase by 190,000. The economy created 93,000 more jobs in March and April than previously estimated, the survey showed on Friday.
However, investors now await the Fed’s policy review meeting on Jun 13-14 after new data showed a jump in the country’s unemployment rate to a seven-month high of 3.7%. Over 75% of market participants now expect the Fed to keep rates unchanged at 5.00-5.25% at its policy meet next week, according to the CME group’s FedWatch tool.
On the domestic front, traders now await the Monetary Policy Committee’s policy review decision at the end of its three-day meeting on Thursday. The market widely expects the domestic rate-setting panel to keep the repo rate unchanged at 6.50%, dealers said.
Traders were also cautious as the market remains divided about the prospects of the committee retaining its stance in its policy decision on Thursday, dealers said.
Meanwhile, the swap market has started pricing in rate cuts starting December, dealers said. “Market is pricing two rate cuts, one in December and the second in February,” a dealer at another private bank said. “The total rate cuts has to be 50 bps.”
OUTLOOK
On Tuesday, swap rates are seen opening steady due to lack of significant domestic cues, dealers said.
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 6.50-6.65%, and the five-year at 5.95-6.15%.
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Aditya Sakorkar
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