Informist, Thursday, Mar 2, 2023
By Anjali
NEW DELHI – Overnight indexed swap rates ended off the day’s high as offshore traders unwound their paid fixed-rate bets at levels considered lucrative. The swaps rose in the early trade tracking a rise in US Treasury yields, dealers said. Five-year swap rate touched the day’s high at 6.72%.
The one-year swap rate settled at 7.04%, against 7.00% on Wednesday. The five-year swap rate ended at 6.67%, against the previous close of 6.62%.
Traders shrugged off the rise in US Treasury yields by the end of the trading hours. Some dealers speculated that a corporate entity received fixed rates in the five-year segment due to narrow spread between 7.38%, 2027 bond and five-year swap rate, dealers said.
“The swaps did not actually move in tandem with the rise in US Treasury yields. Rise was much sharper in US yields as compared to the paying here,” a dealer at a private bank said. “As to why they started receiving, we were hearing some offshore flows in the swap rates.”
The yield on the benchmark 10-year US Treasury note topped the psychologically crucial 4.00% mark and rose to 4.01% on Wednesday from 3.92% on Tuesday due to fears that the Federal Reserve will undertake more rate hikes going ahead.
US Treasury yields rose after the Institute for Supply Management’s survey showed that manufacturing contracted in February and prices for raw materials increased in the world’s largest economy. Comments from Minneapolis US Federal Reserve President Neel Kashkari also boosted US Treasury yields. Kashkari said on Wednesday that he is open to the possibility of a larger interest rate increase at the Fed’s March policy meeting.
“Traders booked profit in the five-year OIS after it went around 6.71-6.72% level,” a dealer at a primary dealership said. “There has been massive paying in the OIS in the last week, so people are unwinding now.”
Traders expect the current levels to sustain given the uncertainty around the rate hike view, dealers said. According to the CME Group’s FedWatch tool, 69.4% of Fed funds traders see the Federal Open Market Committee hiking rates by 25 bps at its March policy review meeting, while the rest expect a 50-bps hike. So far, the US Federal Reserve’s rate-setting panel has raised the policy rate by 450 bps over eight meetings, taking the federal funds rate target to 4.50-4.75%.
OUTLOOK
On Friday, swap rates are seen opening steady due to lack of significant domestic cues, dealers said.
The swap rate in the one-year segment is seen at 6.90-7.20%, and the five-year at 6.55-6.85%.
Traders may watch out for any sharp movement in US Treasury yields and crude oil prices at open.
End
Edited by Akul Nishant Akhoury
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