Informist, Monday, Jul 17, 2023
By Kasthuri Akhil
NEW DELHI – Overnight indexed swap rates ended lower tracking a fall in US yields. Moreover, domestic traders were said to have received fixed rates on behalf of a corporate house, which contributed to the fall in swap rates, dealers said.
The one-year swap rate settled at 6.75%, against 6.77% on Friday. The five-year swap rate closed at 6.24%, against 6.28% on Friday.
The yield on the benchmark 10-year US Treasury note fell to 3.78% from 3.83% on Friday. US yields fell as investors ramped up their bets that the Federal Reserve may be nearing the end of its rate hike cycle.
“There is too much offshore receiving as people are thinking there will be no more rate hikes after the one in July,” a dealer at a primary dealership said. “Market had discounted two hikes earlier, now it has reset and all paid bets are getting covered.”
After recent favourable economic data from the US, including lower-than-expected CPI inflation data for June, the market seems optimistic that the US Federal Open Market Committee may not hike rates after a widely expected 25-basis-point hike at this month’s policy review.
According to the CME’s FedWatch tool, a whopping 96% of Fed fund futures traders expect the US rate-setting panel to hike the federal funds rate by 25 bps on Jul 26, while the rest expect it to keep rates unchanged at 5.00-5.25%.
Some dealers speculated that a corporate entity received fixed rates in the OIS market to protect its underlying liability and interest rate payments on its debt issuance, which led to a fall in the five-year swap rate from the day’s high of 6.31%, dealers said.
“Considering the volumes in the five-year, there is no doubt that it could be anything other than a flow,” a dealer at a primary dealership said. “Neither does the market have any appetite for such a big volume right now, nor is there an event that will cause a change in rate view this week, just before FOMC.”
The five-year swap rate rose to 6.31% in early trade, tracking a rise in the 10-year benchmark US Treasury note at 3.83% on Friday from 3.77% at the end of Indian market hours the same day, dealers said. US Treasury yields surged on Friday as investors expect the inflation print for July to be on the higher side. This, however did not prevent the market from hoping that an end to Fed’s rate hike cycle is imminent.
OUTLOOK
On Tuesday, swap rates may open steady due to lack of fresh cues in the market on domestic interest rates, 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 6.60-6.85%, and the five-year at 6.20-6.45%.
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 (11) 4220-1000
Send comments to [email protected]
© Informist Media Pvt. Ltd. 2023. All rights reserved.
Source: Cogencis
