India IRS Review: Tad down as US yields fall; India Apr CPI awaited

Informist, Thursday, May 11, 2023

By Kasthuri Akhil

MUMBAI – Overnight indexed swap rates ended slightly lower today tracking a fall in US Treasury yields after US CPI for April came in slightly lower than market expectations Wednesday, dealers said.

The one-year swap rate settled at 6.60% today, against 6.63% on Wednesday. The five-year swap rate ended at 6.02%, against 6.06% the previous day.

“Traders received on falling US yields, but it was difficult for five-year swap rate to fall below 6% as traders are not comfortable at these levels given overnight rates are around 6.60-6.80%,” a dealer at a primary dealership said. “The US data now suggests a pause in rates in near-term, rate cuts won’t happen anytime soon.”

Yield on the benchmark 10-year US Treasury note fell to 3.43% on Wednesday from 3.50% at the end of Indian market hours. US yields fell Wednesday after data showed headline inflation rose 4.9% on year in April, against market expectations of 5.0%.

The CPI print cemented investors’ bets on the US Federal Reserve keeping the federal funds rate unchanged at 5.00-5.25% in June. According to the CME FedWatch tool, about 99% of Fed fund futures traders are expecting the Fed pause rates next month.

US yields fell further by 4 basis points to 3.39% from Wednesday’s close following Bank of England’s decision to raise interest rates by 25 bps to 4.50%, on expected lines. The market expects this to be the last hike of the BoE’s monetary policy tightening cycle.

“Until US yields go below 3.40, there won’t be much movement in the swap rates. US yields move tracking data from everywhere like it did after Bank of England’s rate hike,” a dealer at another primary dealership said. “It has to settle for the market to react properly.”

The fall in swap rates was limited as traders maintained caution before the release of domestic CPI print for April. The CPI data is scheduled to be released after market hours Friday. According to an Informist poll, April CPI inflation is seen at 18-month low of 4.8%.

Volumes in shorter-term contracts remained low due as uncertainty in the market about rate cuts persisted, refraining traders from placing large bets in that segment, dealers said.

OUTLOOK

On Friday, swap rates are seen steady as traders may exercise caution awaiting India’s inflation data, due 1730 IST, 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 6.55-6.65%, and the five-year at 6.00-6.10%.

At 1700 IST

Wednesday

1-year OIS

6.60%6.63%

2-year OIS

6.21%6.24%

5-year OIS

6.02%6.06%

2-year MIFOR

6.50- 6.62% 6.59-6.71%

5-year MIFOR

6.56-6.68%6.62-6.74%

End

Edited by Aditya Sakorkar

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Source: Cogencis