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India IRS Review: Rise as India Jul CPI above estimate, US yields up

Informist, Thursday, Aug 17, 2023


By Nishat Anjum


MUMBAI – Overnight indexed swap rates surged as traders paid fixed rates across the curve, after data showed the CPI inflation print for July was higher than expected, dealers said. A surge in US Treasury yields also prompted traders to pay fixed rates.


The one-year swap rate settled at 7.04%, the highest since Mar 9, against 6.94% on Monday. The five-year swap rate ended at 6.75%, the highest level since Nov 9, compared with 6.59% the previous day of trade. 


Money markets were shut on Tuesday due to Independence Day, and on Wednesday on account of Parsi New Year.


“After the surge in initial trade, levels stabilised there as nobody has clarity on where the rates will go from here,” a dealer at a primary dealership said. “6.75% is a good level to receive in 5-year swap rates, that’s why whenever it touches that level, people start receiving.”


Data released by the National Statistical Office on Monday showed India’s annual inflation rate, based on the CPI, spiked to a 15-month high of 7.44% in July from 4.87% in June. The market had widely expected the July inflation print to stand at 6.5%. 


The rise in the headline print was mainly due to a surge in retail prices of vegetables, particularly tomato. In July, the inflation in tomato was 201.54%, the highest in at least eight years. In April 2022, CPI inflation was at 7.79%. At 7.44%, the headline CPI print was the second highest since October 2020. 


The market remained worried about inflation going ahead, as not only vegetables, but also cereals and spice prices are seen rising, dealers said. The ‘cereals and products’ index rose 1.2% month-on-month in July.


Traders now expect the Jul-Sep inflation print to exceed the Reserve Bank of India’s forecast for the quarter, as they expect food inflation to remain high in August as well, dealers said.


The one-year swap rate has factored in another rate hike by the Monetary Policy Committee, and rate cuts are expected only in the second half of 2024-25 (Apr-Mar), dealers said.


Meanwhile, the yield on the benchmark 10-year US Treasury note surged to 4.31% from 4.16% at the end of Indian market hours on Monday. The benchmark 10-year US Treasury yield reached its highest level since October on Wednesday as minutes of the US Federal Open Market Committee’s Jul 25-26 meeting showed most policymakers continued to prioritise the battle against inflation, even as others cited economic risks of pushing rates too far. 


“With inflation still well above the committee’s longer-run goal and the labour market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” the meeting summary stated.


However, Fed officials remain uncertain about the effects of past hikes, the minutes showed. “Participants generally noted a high degree of uncertainty regarding the cumulative effects on the economy of past monetary policy tightening,” the minutes said.


The latest hike in July pushed the federal funds rate – the Fed’s key borrowing rate – into a target range of 5.25% to 5.50%, its highest level in over two decades.


“There are two things. One is obviously the FOMC minutes saying that Fed won’t compromise when it to comes to inflation. And the other thing is the US Treasury yields were not expected to sustain at these levels,” a dealer at a private bank said. “Since, there is no good news, the market will wait and watch.”



On Friday, swap rates may take cues from a report on US unemployment insurance weekly claims for the week ended Saturday, due at 1800 IST today.


Traders will 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 6.90-7.10%, and the five-year at 6.53-6.65%.



At 1700 IST


1-year OIS


2-year OIS


5-year OIS


2-year MIFOR


5-year MIFOR





IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT


Edited by Avishek Dutta


For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.


Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.


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Source: Cogencis

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