Informist, Tuesday, Jan 9, 2024
By Aaryan Khanna
NEW DELHI – Overnight indexed swap rates ended little changed due to lack of significant interest rate cues on either the domestic or global front, dealers said. Volatility in US Treasury yields and crude oil prices during the day led to a pickup in trade volumes.
The one-year swap rate settled at 6.66%, flat against Monday’s close. The five-year swap rate ended at 6.24%, against 6.26% on the previous trading day.
Offshore traders received fixed rates early in the day due to a fall in US Treasury yields and crude oil prices, dealers said.
Brent crude for March delivery fell over 3% to $76.12 a barrel at settlement on Monday after Saudi Arabia, the world’s largest producer, cut prices for export to Asia. The yield on the 10-year US Treasury note eased to 4.01% in Asian trade today from 4.04% at the end of Indian market hours on Monday, ahead of key inflation data this week.
However, the 10-year US Treasury yield rose to 4.05% by the end of Indian market hours today, while the Brent crude contract rose to $77.84 a bbl.
“Paying activity has reduced since people have taken a breather on bond-swaps,” a dealer at a primary dealership said. “Most of the intraday activity came from the movement in US yields.”
Domestic traders had paid fixed rates in the two- and five-year swap rates, and were keen to do it whenever government bond yields would rise, dealers said. A bond-swap transaction involves paying fixed OIS rates and buying the bond, thus “receiving” the yield on the fixed income instrument.
The movement was limited in the short-term contracts, as the rate view remains unchanged, both in the US and back home, dealers said. Currently, the interest rate swap curve factors in a rate cut of 25 basis points in June.
Traders also expect the overnight Mumbai Interbank Offer Rate–the floating leg of the OIS contract–to move to the 6.50-6.60% band by February as the Reserve Bank of India eases monetary policy, followed by a change in stance in April and a 25-bps repo rate cut in June, dealers said.
“See, we are range-bound here. The rates are just going ping pong until you have more interest rate triggers from data, which will only come out at the end of this week, or US yields break the range,” a dealer at a private bank said. “There has already been some repricing when the (10-year) US yields topped 4%, now we have to look at the next level.”
OUTLOOK
On Wednesday, OIS rates may open steady owing to a lack of significant domestic interest rate cues, dealers said.
Traders are likely to look out for the US CPI inflation reading for December, after market hours on Thursday, for fresh cues, dealers said.
A sharp move in US Treasury yields or crude oil prices may also lend cues at the opening.
The swap rate in the one-year segment is seen at 6.55-6.70% and in the five-year segment at 6.15-6.30%.
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Maheswaran Parameswaran
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