Informist, Monday, Oct 23, 2023
By Aaryan Khanna
NEW DELHI – Overnight indexed swap rates ended on a mixed note today in a thin trade. The one-year swap rate ended flat but the five-year swap rate rose due to a surge in US Treasury yields to fresh 16-year highs, dealers said.
The one-year swap rate settled at 7.00%, unchanged from Friday’s close. The five-year swap rate ended at 6.82%, against 6.78% the previous day.
The yield on the benchmark 10-year US Treasury note crossed the psychologically crucial level of 5.00% during the day, and was at 4.99% at the end of Indian market hours today, up by 5 basis points from Friday’s closing level. The yields continued their upward climb ahead of a chunk of US Treasury bill issuance later in the day.
US Treasury yields also rose in turn with a weakening of Japanese government bond prices, after media reports suggested that Bank of Japan officials are considering whether they should change the settings of the yield-curve control programme currently in place that caps yields on Japanese government bonds.
Traders also await a slew of data in the US this week, including the first estimate of Jul-Sep GDP and the September reading for personal consumption expenditure inflation, the US Federal Reserve’s preferred gauge of price rise.
Both domestic and offshore traders paid fixed rates as the yield on the 10-year US Treasury note topped 5%.
“In the morning, there was receiving interest, but as US yields crossed 5% (on the 10-year US Treasury note), people panicked and reversed intraday,” a dealer at a primary dealership said. “However, the bias is towards the receiving, but global volatility is not letting rates come down.”
Swap rates continue to track offshore triggers as the domestic rate view remains unchanged, at a prolonged pause, dealers said. The view was backed up by the minutes of the Monetary Policy Committee’s October meeting, released after market hours on Friday.
India’s six-member rate-setting panel is likely to maintain the policy repo rate at 6.50% for an extended period, with members wary of the recurrence of food price shocks while expecting economic activity to maintain its positive momentum, dealers said. At the same time, rate hikes seemed unlikely as several members expressed comfort over core inflation, which strips out volatile items like food and fuel, trending lower.
RBI Governor Shaktikanta Das and external member Ashima Goyal also batted for tight liquidity conditions to continue to better transmit the rate hikes the panel has effected between May 2022 and February this year. Traders expect the RBI to maintain tight liquidity conditions over the next six months, dealers said.
Bank treasury desks were also half-staffed as some dealers had taken leave for the long weekend, further stifling trade volumes across swap contracts. Money markets are shut on Tuesday for Dussehra.
“There’s no point, all this paying has happened in very thin trade and the broad market positioning remains intact,” a dealer at a private bank said. “People are not at all interested in trading anything on the short-end, in swaps or gilts.”
OUTLOOK
Money markets are shut on Tuesday for Dussehra.
On Wednesday, OIS rates may open steady due to a lack of significant domestic cues, dealers said.
Traders may avoid large bets ahead of a slew of economic data releases slated in the US this week, including GDP data for Jul-Sep and the September reading for the US Fed’s preferred inflation gauge.
Traders will 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 6.90-7.10% and in the five-year segment at 6.60-6.90%.
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Akul Nishant Akhoury
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