Informist, Thursday, Nov 16, 2023
By Nishat Anjum
MUMBAI – Overnight indexed swap rates ended little changed today as the market lacked fresh cues on interest rates, both domestic and global, dealers said. Moreover, the volume in the short-term swap rates remained low.
The one-year swap rate settled at 6.85%, compared with 6.84 on Wednesday. The five-year swap rate ended at 6.46%, against 6.45% the previous trading day.
Throughout the day, traders tracked the movement in US Treasury yields, dealers said. “In the morning there was some paying because of the US yields rising but nothing really significant,” a dealer at a private bank said. “But the volumes were muted in almost all contracts today.”
The yield on the 10-year US Treasury note rose to 4.50%, as against 4.47% at Indian market close on Wednesday. US Treasury yields rose despite a better-than-expected producer price index for October. Investors gave more importance to the October retail sales data, which declined slower than expected.
In October, retail sales declined by 0.1% on month, a lower decline than market expectations of a 0.3% fall. The September data was also revised upwards to show sales increasing 0.9% monthly, instead of the previously reported 0.7% rise.
Meanwhile, the US producer price index data for October, released on Wednesday, rose 1.3% on year in October, lower than expectations of a 1.9% increase.
According to the CME Fedwatch Tool, in the upcoming December meeting of the US Federal Open Market Committee, around 97% of fed funds futures traders expect the committee to maintain status quo. This is higher than 85.53% on Tuesday. The current target range is 5.25-5.50%.
Meanwhile, back home, swap rates are factoring cuts only after one year, dealers said.
Moreover, movement in the one-year swap rate remained limited due to the high overnight money market rates, which persisted well above the Reserve Bank of India’s Marginal Standing Facility of 6.75%, dealers said. The overnight Mumbai Interbank Offer Rate – the floating leg of the OIS contract — was set at 6.89% today.
“When the overnight rates are hovering in 6.87-6.89% bracket, it is obvious for the one-year contract to be on the higher side even if other contracts fall,” a dealer at a primary dealership said. “To be honest, there was nobody in the market today, and volumes reflect that.”
OUTLOOK
On Friday, swap rates may open steady due to lack of significant domestic or offshore cues. A sharp move in US Treasury yields and crude oil prices may also lend cues at the opening.
The swap rate in the one-year segment is seen at 6.78-7.00% and in the five-year segment at 6.35-6.60%.
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Aditya Sakorkar
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