Informist, Tuesday, Jan 30, 2024
By Nishat Anjum
MUMBAI – Overnight indexed swap rates ended largely unchanged today as traders refrained from placing aggressive bets on caution ahead of the US Federal Open Market Committee’s meeting outcome, due early Thursday, dealers said. The one-year swap rate settled at 6.59%, unchanged from Monday. The five-year swap rate ended at 6.19%, flat against the previous trading day.
The market remained lacklustre throughout the day as traders remained on the sidelines ahead of the Interim Budget for 2024-25 (Apr-Mar), dealers said. The volume in the one-year swap contract was the lowest since Wednesday.
“The Budget is likely to be positive, but the market would obviously be cautious ahead of any major event,” a dealer at a private bank said. “This government has been fiscally responsible, so I don’t see any major surprises there.”
According to an Informist poll, the government is likely to meet its Budget estimate for fiscal deficit in 2023-24. A fiscal deficit of 5.9% of GDP seems attainable primarily due to a surge in direct tax collections, even as nominal GDP growth flounders. This may help contain the fiscal deficit within the target in absolute terms.
During the day, traders received fixed rates tracking a fall in US Treasury yields, dealers said. US Treasury yields fell as the expected borrowing figure of $760 bln for Jan-Mar is far lower than the estimate of $816 bln.
Investors looked ahead to a week of key economic data and the US Federal Reserve’s first interest rate decision of the year. In the upcoming February policy, the market widely believes the US Federal Open Market Committee would maintain the status quo. The current target rate is 5.25-5.50%.
Meanwhile, data from the CME Group’s FedWatch tool showed that 46.8% of Fed Fund futures traders are now pricing in a 25-basis-point rate cut by the US Fed in March.
Back home, at the upcoming Monetary Policy Committee meeting in February, some traders expect a change in policy stance to ‘neutral’ from ‘withdrawal of accommodation’. This comes against the backdrop of multiple variable rate repo auctions conducted by the Reserve Bank of India, dealers said. Moreover, traders 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, dealers said. Today, the MIBOR was pegged at 6.85%. A fall in the overnight MIBOR would be seen as the first sign of softening of the monetary policy conditions in India, dealers said.
“Some participants are expecting a policy stance change in February,” a dealer at a primary dealership said. “Most are just seeing a dovish policy. They are on the liquidity camp but not anything more than that.”
OUTLOOK
On Wednesday, swap rates may open steady as traders avoid aggressive bets on caution ahead of the US Fed’s two-day meeting outcome early Thursday, dealers said.
The market may also take cues from the Job Openings and Labor Turnover Survey for December by the US Commerce Department, due at 2030 IST. Moreover, a sharp movement 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 6.50-6.65% and in the five-year segment at 6.15-6.30%.
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Tanima Banerjee
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