Informist, Tuesday, Jul 18, 2023,
By Kasthuri Akhil
NEW DELHI – Overnight indexed swap rates ended lower tracking a fall in US Treasury yields. Moreover, offshore traders received fixed rates in the five-year segment, which contributed to the fall, dealers said.
The one-year swap rate settled at 6.75%, unchanged from Monday, while the five-year swap rate closed at 6.20%, against 6.24% on Monday.
US Treasury yields fell during the day ahead of key economic data that investors hope will provide further insight into the rate trajectory in the US. Traders also await the US Federal Open Market Committee’s meeting on Jul 25-26, where the US rate-setting panel is widely expected to raise the federal funds rate by 25 basis points, dealers said. The yield on the benchmark 10-year US Treasury note fell to 3.76% from 3.81% during the day.
“Offshore traders were expecting retail sales data to come lower in the evening, so they were most likely punting on that,” a dealer at a primary dealership said. “Other than that, we can see continuous receiving from 6.40% (five-year swap rate) levels just like yesterday (Monday).”
Offshore traders likely received fixed rates on the expectation that the rate hike by the Fed in July would most likely be the last, after the recent favourable economic data from the US, including lower-than-expected CPI inflation data for June, indicated a cooling US economy, dealers said.
Besides offshore receiving, domestic traders were also speculated to have received fixed rates on behalf of a corporate entity for the second consecutive day, which also led to the fall in the five-year swap rate to the day’s low of 6.19%, dealers said.
Dealers also said that traders unwound their paid-fixed-rate bets after stop losses were hit in the five-year contract following a sharp fall in the swap rate from levels around 6.40% last week. The swap rate fell significantly as a result of the sharp fall in US yields during the same period, dealers said.
“The (benchmark 10-year) US yield looks like it has a strong support at 3.75%. It all depends on where global yields are headed,” a dealer at another primary dealership said. “It may dip further down to 6.10% if 3.75% (yield on 10-year benchmark US bond) breaks.”
OUTLOOK
On Wednesday, swap rates may open steady due to lack of fresh cues in the market on domestic interest rates, dealers said.
Traders will 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 6.60-6.85%, and the five-year at 6.20-6.45%.
End
Edited by Maheswaran Parameswaran
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