Informist, Monday, Jan 16, 2023
MUMBAI – Overnight indexed swap rates ended on a mixed note today, with the one-year swap rate up as traders unwound their received fixed–rate bets after comments from Reserve Bank of India Governor Shaktikanta Das firmed up expectations of an imminent rate hike, dealers said.
The one-year swap rate settled at 6.67%, against 6.60% on Friday. The five-year swap rate ended at 6.23%, against Friday’s close of 6.22%.
Traders paid fixed rates in the one-year contract after RBI Governor Das on Friday said the central bank has not lost sight of the need to focus on inflation and high core inflation was uncomfortable to deal with. Sticky core inflation at 6% was area of concern for the central bank, Das said.
In December, core inflation inched up to 6.1% from 6.0% in November, even as headline inflation fell to 5.72%, a 12-month low. The headline CPI inflation reading has led to some traders taking bets that the Monetary Policy Committee may opt out of a rate hike at its upcoming policy review in February, dealers said.
“Few traders expected the rate-hike cycle to pause after the recent inflation data, but the comment from the governor indicates otherwise,” a dealer from a primary dealership said. “Traders who expect one more rate hike paid fixed rates in one-year segment.”
Meanwhile, the US Treasury bonds were not traded today as the US financial markets were closed on account of Martin Luther King’s Day, which limited the movement in the five-year swap rate, dealers said.
“The five-year segment remained almost flat on lack of significant cues,” a dealer at another primary dealership said. “The overnight rise in US yields prompted slight paying, but traders soon moved to the sidelines as they had nothing to track during the day.”
The yield on the benchmark 10-year US Treasury note rose by 6 basis points to 3.49% on Friday, against Thursday’s close as traders assessed the outlook on the US Federal Reserve’s course of rate hikes. Fed funds traders are pricing in rate cuts later this year, after the US inflation cooled in December to 6.5% against 7.1% in November, but some investors were of the view that large rate cuts in 2023 were unlikely.
On Tuesday, overnight swap rates are seen opening steady due to lack of significant domestic cues, dealers said.
Traders may 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 6.55-6.75%, and the five-year at 6.15-6.35%.
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Manisha Baxla
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