Informist, Wednesday, Feb 7, 2024
By Nishat Anjum
MUMBAI – Overnight indexed swap rates ended steady today as traders refrained from placing aggressive bets on caution ahead of the Reserve Bank of India’s Monetary Policy Committee meeting outcome, due Thursday, dealers said. Some traders received fixed rates in early trade tracking an overnight fall in US yields.
The one-year swap rate settled at 6.61%, unchanged from Tuesday. The five-year swap rate ended at 6.21%, against 6.23% on the previous trading day.
“Swaps have very closely tracked US yields for most of the day,” a dealer at a private bank said. “In addition, people unwound (their positions) before the MPC and avoid heavy paying or receiving.”
The market is keeping a close watch on the outcome of the RBI rate-setting panel’s three-day meeting, dealers said. The panel is expected to leave the policy repo rate unchanged at 6.50%, according to a poll by Informist. The focus will be on whether the members of the panel think it is time to change the policy stance of ‘withdrawal of accommodation’. Also in focus will be measures by the central bank to ease the large liquidity deficit in the banking system.
Some traders expect a change in policy stance to ‘neutral’ from ‘withdrawal of accommodation’ at the policy review, dealers said. Others think variable rate reverse repo auctions conducted by the central bank might be an indication that it’s too early for a change of stance. Moreover, the swap rates have factored in a 25-basis-point rate cut in August, against the earlier expectation of June, dealers said.
Meanwhile, the yield on the 10-year benchmark US Treasury note fell to 4.09% in early trade, from 4.15% at the close of trade in Indian markets Tuesday. US Treasury yields fell after strong demand for new three-year notes auctioned by the Department of the Treasury aided the buying sentiment. Investors also looked for fresh cues on how soon the US Federal Reserve may begin cutting interest rates.
According to the CME Group’s FedWatch Tool, 78.5% of Fed fund futures traders expect the federal funds interest rate to be retained at 5.25-5.50% at the March meeting. However, 53% of them expect a 25 bps cut in May.
“The US market is still factoring in more rate cuts than the Fed indicated. So, it is sort of a correction with respect to that,” a dealer at another private bank said.
OUTLOOK
On Thursday, swap rates may open steady due to caution ahead of the outcome of the Monetary Policy Committee’s meeting, dealers said. 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 6.50-6.70% and in the five-year segment at 6.10-6.30%.
End
Edited by Rajeev Pai
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