Informist, Friday, Nov 17, 2023
By Nishat Anjum and Aaryan Khanna
MUMBAI/NEW DELHI – Overnight indexed swap rates ended little changed, despite a fall in US Treasury yields, as traders avoided aggressive bets on a lack of firm domestic interest rate cues, dealers said.
The one-year swap rate settled at 6.85%, flat against Thursday’s close. The five-year swap rate ended at 6.46%, also unchanged from the previous close.
Domestically, swap rates are factoring in repo rate cuts only after one year, with no triggers to bring forward that view in the near term, dealers said.
Moreover, movement in the one-year swap rate remained limited due to the high overnight money market rates, which persisted well above the Reserve Bank of India’s Marginal Standing Facility of 6.75%, dealers said. The overnight Mumbai Interbank Offer Rate–the floating leg of the OIS contract–was set at 6.90% today. Short-term swap rates have been largely static throughout the week.
“The one-year swap is not of interest to anyone right now,” a dealer at a foreign bank said. “Even if you think about the five-year swap rate, that has corrected the most in the rally in US yields, it has priced in a lot.”
The five-year swap rate has fallen by 22 basis points so far in November.
For most of the day, the swap rates tracked the movement in US Treasury yields, dealers said. The yield on the 10-year US Treasury note fell to a low of 4.38%, as against 4.45% in early trade.
US Treasury yields fell as investors digested the weekly jobless claims data, which rose more than market expectations. The data for the week ended Saturday was at 231,000, up by 13,000 claims from the previous week and higher than the market expectation of 220,000 polled by Reuters.
The weekly jobs data helped in cementing bets that the US Federal Reserve may not raise interest rates any further. Since March 2022, the Fed has hiked its policy rate by 525 basis points to the current 5.25-5.50% range.
“There has been offshore receiving based on the interest rate view,” a dealer at a private bank said. “Swap rates have become largely only view driven, quite separate from bonds and Bloomberg index inclusion news.”
In the upcoming Federal Open Market Committee meeting scheduled for Dec 12-13, a whopping 99.7% of Fed fund futures traders expect the US rate-setting panel to maintain the status quo, while the rest expect a hike of 25 bps, according to CME FedWatch Tool. Moreover, 49.3% of Fed Fund futures traders expect the Fed to start cutting rates in May.
OUTLOOK
Swap rates are not traded on Saturdays.
On Monday, swap rates may open steady due to lack of significant domestic or offshore cues. A sharp move in US Treasury yields and crude oil prices may also lend cues at the opening.
The swap rate in the one-year segment is seen at 6.78-7.00% and in the five-year segment at 6.35-6.60%.
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Akul Nishant Akhoury
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