Informist, Wednesday, Dec 14, 2022
By Shubham Rana
MUMBAI – Overnight indexed swap rates ended slightly lower today as a lower-than-estimated US CPI inflation print pulled down US Treasury yields on Tuesday, dealers said. The 5-year swap rate ended at the lowest level since Aug 17, while the 1-year swap rate ended at its lowest since Sep 15.
The fall in swap rates was limited as traders avoided placing large bets ahead of the US Federal Open Market Committee meeting outcome.
The 1-year swap rate settled at 6.60% compared with 6.63% on Tuesday, while the 5-year swap rate ended at 6.21%, against the previous day’s close of 6.23%. The market timing has been shifted to 0900-1700 IST since Monday.
US Treasury yields fell after the headline inflation print for November came in at 7.1% on year, 20 basis points lower than expectations in a Reuters poll. The yield on the benchmark US Treasury note fell 10 basis points to 3.51% on Tuesday.
The fall in OIS rates was also limited as dealers don’t see room for further fall in swap rates.
The 5-year swap rate has come down 86 bps from the high of 7.07% in October and the 1-year has come down nearly 60 bps from the high of 7.19% in October.
“Swap rates have bottomed out, and I don’t see a further fall,” a dealer at a private bank said. “The only way I see rates falling further is because of some individual’s positioning but not because of fundamentals.”
Traders awaited the outcome of the FOMC meeting at 0030 IST on Thursday and the comments by US Federal Reserve Chair Jerome Powell after the rate decision. The Fed is widely expected to hike interest rates by a smaller 50 bps compared to the last four 75-bps rate hikes.
The rate decision and the commentary by Fed officials are also expected to guide the path of Reserve Bank of India’s monetary policy tightening, dealers said.
OUTLOOK
On Thursday, swap rates are seen taking cues from the US FOMC rate decision.
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 6.55-6.70%, and the five-year at 6.15-6.30%.
End
US$1 = 82.46 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Maheswaran Parameswaran
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