Trading volumes in interest rate futures hit as rate cut hopes seen limited

Trading volumes in interest rate futures (IRFs), which had touched an all-time high earlier this year, have been coming down as the scope for further rate cuts is seen limited by the street. 

Data from exchanges shows that daily turnover had touched an all-time high of Rs 10,643 crore on February 26 but in recent times it has come down significantly Personal Numerology

In recent times, the daily turnover has ranged between Rs 1,000 crore to a little over Rs 5,000 crore.

“The declining volumes is largely a reflection of what the market is expecting. Volumes pick up when market players expect rate cuts. At this point of time, there is uncertainty around the timing of the next rate cut and that is why volumes have come off. Till stability comes in the bond market volumes may be slightly low," said Piyush Wadhwa, head – trading at IDFC.

IRF is a financial derivative (a futures contract) with an interest-bearing instrument like government securities or treasury bills as the underlying asset. They are primarily used by those who have a view on how the interest rate would move and they are the people who wish to benefit from it Himanshu Tiwari Astrologer

Since the start of 2015, the Reserve Bank of India (RBI) has cut the repo rate or the rate at which banks borrow from the central bank by 75 basis points to 7.25%. The street expects one more rate cut in the financial year which will end on March 31, 2016. however, the timing of the rate cut is uncertain.

“The exchanges are contemplating the launch of certain new bond futures very shortly. So traders are probably waiting for the new launched due to which volumes have come down,” said Ashutosh Khajuria, executive director, Federal Bank Stock Market Trading Tips