Informist, Friday, Mar 31, 2023
By Nishat Anjum
MUMBAI – Overnight indexed swap rates ended higher today as traders unwound their received fixed-rate bets ahead of the Monetary Policy Committee’s meeting next week, dealers said.
The one-year swap rate settled at 6.82%, against 6.79% on Wednesday. The five-year swap rate ended at 6.30% against the previous close of 6.25%. Money markets were shut on Thursday on account of Ram Navami.
The meeting of the Monetary Policy Committee is scheduled for Apr 3, 5 and 6. Traders largely expect the rate-setting panel to go for a 25-basis-point rate hike and stick to the ‘withdrawal of accommodation’ policy stance. They also expect the repo rate to top out at 6.75% after a final hike of 25 bps in April, dealers said.
“People are now unwinding whatever positions they had before the start of the new financial year,” a dealer at a primary dealership said. “Traders who were expecting a pause earlier, have now realised that there could be a hike of 25 bps, so they unwound their bets.”
Dealers said if the terminal repo rate is at 6.75%, traders did not see 6.25% as an optimum level for the five-year swap rate. Moreover, with the uncertainty in the banking sector easing, traders see US Treasury yields not slumping more and, therefore, paid fixed rates in the five-year segment.
Dealers also speculated that foreign banks paid fixed rates in the OIS market. “We heard foreign banks were paying in swap rates. Now that US Treasury yields are not falling on the fear of banking sector instability, traders started paying in swap rates, given more people are expecting MPC (Monetary Policy Committee) to go for a 25-bps hike.”
Swap rates also inched higher as the overnight Mumbai Interbank Offer Rate–the floating leg of the overnight indexed swap rate–was pegged at 7.79%, the highest this financial year, dealers said. Usually, banks refrain from lending on the last day of the financial year, retaining large cash holdings to dress up their balance sheets. Borrowing through the overnight window picks up close to Mar 31 each year, as banks try to meet asset-liability mismatches on their balance sheets.
The market disregarded the movement in US Treasury yields during the day, dealers said. Traders awaited data on consumption expenditure in the US, the US Federal Reserve’s preferred inflation gauge print, for further insight into the interest rate view of the US central bank. According to a poll by Reuters, the data, scheduled to be released today after market hours, is expected to show an annual increase of 4.7%, down from 5.4% in January. The consumer price rise may also slow to 0.4% on month from 0.6% in January.
OUTLOOK
Swaps are not traded on Saturdays. On Monday, swap rates are seen steady due to lack of significant cues in the domestic market, 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 6.75-6.90%, and the five-year at 6.25-6.40%.
End
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.
Informist Media Tel +91 (22) 6985-4000
Send comments to [email protected]
© Informist Media Pvt. Ltd. 2023. All rights reserved.
Source: Cogencis
