Informist, Tuesday, Feb 28, 2023
By Anjali
NEW DELHI – Overnight indexed swap rates ended steady today due to uncertainty around rate hike, dealers said. Traders paid fixed rates across segments in the early trade, tracking a rise in US Treasury yields.
The one-year swap rate settled at 7.05%, flat against Monday. The five-year swap rate ended at 6.69%, against Friday’s close of 6.70%.
“Initially volumes were so low both in OIS and gilts. It’s only when there was movement in US Treasury yields after some surprising CPI in Europe, there was genuine paying in the swap rates,” a dealer at a private bank said. “The market is now bearish, seeing higher interest rates.”
Preliminary inflation numbers for Spain and France surprised on the upside this morning, with headline Harmonised Index of Consumer Prices rates lifting 0.2 percentage points. These were the first big Eurozone countries to release numbers and the data suggests an upside surprise in the preliminary Eurozone Harmonised Index of Consumer Prices, due this week.
The yield on the benchmark 10-year US Treasury note fell to 3.92% on Monday from 3.95% on Friday, however, the yield inched up to 3.95% again during the day which prompted traders to pay higher fixed rates, dealers said.
On the domestic front, traders who had earlier expected the 25-bps rate hike in February to be the final leg of the rate hike cycle, have now started to consider another hike at the next meeting of the Monetary Policy Committee, dealers said. Even though the rate setting panel raised the repo rate by 25 bps in February, it did not hint, in any way, that this was the final hike.
Meanwhile, Jayanth Varma, an external member of the Reserve Bank of India’s rate-setting panel, in a talk with Informist said that the Monetary Policy Committee faces a high degree of urgency to ensure that headline inflation stays within its tolerance band of 2-6%, but the pursuit of its target of 4% should factor in the additional mandate of supporting growth.
“There was some paying after the comments from the Monetary Policy Committee member Jayant Verma,” a dealer at a primary dealership said. “But, the uncertainty still continues.”
“So you have to bring it (inflation) down till a point where you know that we are unlikely to breach 6%. So that urgency is very high. To the safe zone, where you say if something goes wrong, it will still stay below 6.%, so there’s no question in that,” Varma told Informist in an interview.
OUTLOOK
On Wednesday, 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 6.85-7.15%, 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
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Akul Nishant Akhoury
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