Informist, Tuesday, Aug 29, 2023
By Nishat Anjum and Shubham Rana
MUMBAI/NEW DELHI – Overnight indexed swap rates were little changed due to lack of significant domestic cues, dealers said. The one-year swap rate settled at 6.99%, flat against Monday. The five-year swap rate ended at 6.60%, compared with 6.61% on the previous day of trade.
During the session, traders unwound their paid bets tracking an overnight fall in US Treasury yields, dealers said. The yield on the benchmark 10-year US Treasury note was at 4.22% at end of Indian trading hours, compared to 4.24% at the close of Indian market on Monday.
“In the five-year, these are good levels to pay if one can see the movement of US Treasury yields is not backed up by data,” a dealer at a private bank said. “I don’t think the movement will be rate view based right now. A lot of data is scheduled for the week, everybody is waiting for that,”
US Treasury yields inched lower on Monday ahead a slew of US economic data, scheduled to be released this week. The data include an employment report, personal consumption expenditure data, Institute of Supply Management purchasing managers’ index, and the second estimate of GDP for Apr-Jun.
Major focus would be on the Fed’s preferred inflation gauge, the US PCE price index, due on Thursday, and the non-farm payrolls report due on Friday, as these may provide insight into the US Federal Reserve further policy action, dealers said.
According to the CME FedWatch Tool, close to 22% of Fed fund futures traders expect a hike of 25 basis points at the September policy review, while others expect the rates to remain unchanged at 5.25-5.50%.
Despite some fears of a hike in the US, after the Fed Chair Jerome Powell’s comments at the Jackson Hole Economic Policy Symposium, the market widely does not expect a rate hike either in the US or back home, dealers said. On Friday, Powell said the US central bank was prepared to raise rates further if the need arose.
Traders also think that the policymakers would refrain from hinting at any easing of monetary policy conditions, as the market may then start factoring cuts, dealers said.
Back home, swap rates factor in rate cuts only a year from now as inflation remains well above the Reserve Bank of India’s target of 4%, dealers said. In July, India’s headline inflation jumped to a 15-month high of 7.44% from 4.87% in June.
“Forget about rate cuts anytime soon, if the recent tightening in the liquidity continues then the market will surely take rates higher,” a dealer at a primary dealership said. “It is already reflective in the volumes in the short end.”
OUTLOOK
On Wednesday, swap rates may open steady due to lack of fresh cues on domestic interest rates, dealers said.
Traders await a slew of US economic data this week, including US Job Openings and Labor Turnover Survey, which is due later today.
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 6.90-7.10%, and the five-year segment at 6.50-6.70%.
End
Edited by Avishek Dutta
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