Informist, Tuesday, Jan 31, 2023
By Anjali
NEW DELHI – Overnight indexed swap rates ended steady across all segments today as traders kept to the sidelines on caution ahead of the US rate-setting panel’s policy meeting outcome and Union Budget, dealers said.
The one-year swap rate settled at 6.73%, against 6.74% on Monday. The five-year swap rate ended at 6.29%, against the previous close of 6.31%.
“Market has dragged a bit down because traders are not taking any new positions and there are no positions to unwind also,” a dealer at a primary dealership said.
Some dealers said that traders were active in the OIS market for the past numerous months due to uncertainty over terminal rate. However, now the traders expect the rate hike cycle to approach the end, which has restricted the OIS market to a minimal movement.
The two-day US Federal Open Market Committee meeting will start today, and the US central bank is expected to raise rates by only 25 basis points, against the previous hike of 50 bps, dealers said.
According to the CME FedWatch tool, 98.1% of futures traders expect the panel to raise the Federal funds target range by 25 basis points. In over a year, the Fed has increased its federal funds rate by 425 bps from almost zero in seven rate hikes.
Furthermore, the Reserve Bank of India’s Monetary Policy Committee’s meeting is scheduled for Feb 6-8, which will be crucial in deciding whether 6.50% will be the terminal rate or not, dealers said. The domestic rate view remained unchanged with swap market participants factoring in a 25-bps repo rate hike on Feb 8.
After February, policymakers are likely to opt for an extended pause as they gauge the trajectory of domestic growth and inflation, dealers said.
Moreover, traders unwound their positions as a precaution before Budget. The OIS market is not much affected by the Union Budget, dealers said. “There might be some movement after Budget, but traders are mainly waiting for the FOMC meet outcome,” a dealer at another primary dealership said.
However, some dealers said that traders don’t want to risk their positions ahead of Union Budget. Traders are likely to place fresh bets only after the announcement of the gross borrowing number for 2023-24 (Apr-Mar) in the Union Budget after gauging its impact on their underlying gilt holdings, dealers said.
An Informist poll showed the government may announce a record borrowing programme of 15.8 trln rupees on a gross basis. On a net basis, the government may peg its issuance of dated securities at 11.68 trln rupees in 2023-24, up 4% from the budgeted 11.19 trln rupees in the current financial year, the poll showed.
OUTLOOK
On Wednesday, swap rates are seen opening steady due to caution ahead of the US FOMC meet outcome on Thursday, dealers said.
Traders may also stay on the sidelines before the Union Budget, dealers said.
Finance Minister Nirmala Sitharaman will present the Budget for 2023-24 at 1100 IST in the Parliament on Wednesday.
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 6.65-6.85%, and the five-year at 6.25-6.40%.
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Maheswaran Parameswaran
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