Australian rate futures rose and bond futures pared losses after data showed it was on the brink of recession, while Indian investors braced for more debt supplies. Dollar funding costs eased marginally but some analysts believe rates would rise again as central banks in developed countries are rapidly running out of room to cut rates further.
-- Indian rate cut offers little respite
-- Indonesian yield curve shifts lower after big rate cut
-- Dollar fund costs ease
Australian April rate futures rose 0.01 point to 97.135, indicating investors were leaning back towards a cut of 50 basis points at the RBAs next monthly policy meeting on April 7 after the nations economy unexpectedly shrank for the first time in eight years last quarter.
But some analysts said the Reserve Bank of Australia (RBA) was unlikely to cut rates so soon, especially after the central bank has cut rates by a hefty 400 basis points (bps) since September. "The clear signal is they want to sit back and assess how the very large interest cuts and the governments fiscal packages are impacting," said Peter Jolly, head of research at National Australia Bank, who expects the RBA to stay pat.
"Monetary policy takes some time to impact economic activity. The true judgement will be if the data is weak in June and July and if it is they will cut again," he said. The cost of borrowing dollars edged lower in Asia. In Singapore, 3-month dollars were quoted at 1.26443 percent, slightly lower from Wednesdays 1.26605 percent, but far wider than the 3-month overnight-indexed swap at 0.2425 percent.
But some tightness is expected to emerge as banks remain worried about lending to each other and as the easing cycle nears an end in some economies. "There will be a squeeze in money markets especially dollar rates," said Suresh Ramnathan, regional fx and rates strategist with CIMB Investment Bank.
"We are coming to the tail end of the easing especially in the G10 economies, given these conditions the market is pondering whats next in the policy tool box."
In India, bond yields briefly fell following a 50 basis points rate cut, but pulled back again as investors positioned themselves for a $2.3 billion bond sale on Friday. "The rate cut was expected but the delivery was delayed," said J Moses Harding, head of global markets at IndusInd Bank. "The market was expecting a more aggressive rate cut..."
After market hours on Wednesday, the Reserve Bank of India (RBI) cut its main lending and deposit rate by 50 basis points each to prop up the slowing economy. Dealers said supply was the main concern going forward and unless this was addressed through aggressive buybacks, investors would exit when bond prices rise.
Reflecting this worry, the benchmark five-year swap rate was at 5.21/29 percent, a level last seen on December 11, 2008, and above Wednesdays close of 5.15/22 percent.
The Indonesian bond yield curve shifted lower after the central bank cut the benchmark rate more aggressively than expected. Bank Indonesia cut its policy rate by a bigger-than-expected half a percentage point on Wednesday, to 7.75 percent, the lowest level since the rate was introduced in 2005. Bonds have been under pressure from risk-averse foreign investor selling as they liquidated their holdings amid a weakening currency.
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