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India IRS Review: Up as crude oil prices surge; 1-year OIS off highs

Informist, Tuesday, Oct 5, 2021


By Aaryan Khanna


NEW DELHI – Overnight indexed swap rates ended on a mixed note, with the five-year OIS up tracking an overnight surge in crude oil prices after the Organization of Petroleum Exporting Countries and its allies refrained from ramping up output targets despite elevated prices.


OPEC and its allies, at their ministerial meeting on Monday, stuck to their plan to raise output by only 400,000 barrels per day every month till the end of the year despite calls from major consumers such as the US and India to step up production to ease oil prices.


The Brent crude oil futures contract for December delivery surged to settle at a three-year high of $81.26 per bbl on Monday, up 2.5% overnight, and rose further to $81.81 per bbl during the day. Typically, a rise in crude oil prices increases upside risks to inflation in India and reduces the room for the Reserve Bank of India to prolong its monetary policy accommodation.


The one-year rate ended at 4.03% against 4.02% on Monday, and the five-year swap rate ended at 5.38% against the previous close of 5.35%.


“Obviously, the long-term swaps were the most exposed to overseas paying movement because of crude, and there is domestic interest too since the OPEC move means prices may remain high,” a dealer at a private bank said.


“In fact, there was still a lot of paying interest, I think they ended on a relatively decent note because of the policy,” the dealer said.


The RBI’s Monetary Policy Committee is scheduled to hold a two-day meet starting Wednesday to decide on the repo rate, which is seen unchanged by traders. While not under the ambit of the MPC, the RBI is seen announcing its steps towards policy normalisation at the outcome of the review on Friday, dealers said.


Meanwhile, the one-year OIS edged up but was relatively protected as traders had already paid large fixed rate positions in the run-up to the policy, pricing in a potential reverse repo rate hike of 15 basis points, dealers said.


Some traders chose to unwind their paid bets towards the end of the day on caution before the policy as the market has heavily bet on the RBI laying down the roadmap for policy normalisation. The one-year swap rate had hit a high of 4.05% intraday.


Moreover, short-term swap rates moderated after the result of the RBI’s seven-day, 2-trln-rupee auction was along expected line, with the central bank setting the cut-off yield at 3.61%. Short-term rates had shot up over the past week after the previous liquidity mop-up auction, of the same size and tenure, had attracted the highest possible cut-off yield of 3.99%.


“Around 3.60% was what was being expected, that already prices in a lot of volatility if you compare it to the 3.35% reverse repo; and the one-year swap over 4% is a solid enough view for most people before the policy actually takes some measures,” a dealer at a foreign bank said.



On Wednesday, OIS rates are expected to open steady as dealers may avoid large bets.


Rates are now seen in a narrow band in the near term due to the recent volatility in the run-up to RBI’s monetary policy meeting, which starts Wednesday.


Any sharp movement in crude oil prices and US Treasury yields overnight may lend cues at open.


The swap rate in the one-year segment is seen at 3.90-4.10%, and in the five-year at 5.10-5.40%.



At 1530 IST


1-year OIS



2-year OIS



5-year OIS



2-year MIFOR



5-year MIFOR






US$1 = 74.45 rupees

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT


Edited by Patricia Hou


Cogencis news is now Informist. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.


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Source: Cogencis

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