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India IRS Review: Rates fall; offshore clients unwind paid positions

Informist, Tuesday, Nov 2, 2021


By Aaryan Khanna


NEW DELHI – Overnight indexed swaps ended lower as dealers unwound their paid fixed-rate positions on the view that the heavy paying and elevated rates across maturities were overdone.


The one-year rate ended at 4.26% against 4.31% on Monday, while the five-year swap rate ended at 5.60% against the previous close of 5.66%.


Traders had held on to their fixed rate paid positions on the view that the elevated levels had priced in upcoming policy normalisation measures and a rise in money market rates, dealers said. The Reserve Bank of India is widely expected to hike its reverse repo rate in its December policy review.


However, foreign portfolio investors unwound their paid fixed rate bets early in the day on the view that the recent rise in OIS rates was too high. Domestic investors had little choice but to follow suit, with unexpectedly large volumes concentrated in the one-, two- and five-year segments, dealers said.


Further, a strong subscription at the variable rate reverse repo auctions of seven- and 28-day tenures by the RBI led to the central bank absorbing excess liquidity at lower than the 3.99% that banks had demanded for the last few auctions to park funds across durations. The marginal fall in cut-offs to park funds also led banks to receive fixed rates, dealers said.


“FPIs were all on the receiving side today, all those who had paid sharply over the last week or so have begun squaring off those positions since US yields don’t seem to be going anywhere before policy,” a dealer at a primary dealership said.


OIS rates also eased tracking a fall in US Treasury yields in the run-up to the Federal Open Market Committee meeting which begins today, dealers said. The Fed will announce the policy outcome after Indian market hours on Wednesday.


US policymakers will likely discuss the future of its quantitative easing programme, introduced in the wake of the COVID-19 pandemic, which will include beginning to taper its $120-bln monthly asset purchases. Global investors bet on a benign taper, and domestic swap rates may spike if the US Fed announces a quicker-than-expected roadmap to raising rates, dealers said.


Yield on the 10-year US Treasury fell 3 basis points from its close on Monday to 1.55% at the end of Indian market hours. Traders are now keenly awaiting the outcome of the Fed meet to gauge how quickly the world’s largest central bank will pull back its ultra-accommodative monetary stimulus measures for cues in the near term, dealers said.


“Rates have gone up and down these days, there isn’t anyone to receive in a rising interest rate scenario both in India and globally, even the FPIs only trimmed some paid positions which were too aggressive at this point,” a dealer at a private bank said.




Swap rates may open steady on Wednesday as dealers may keep to the sidelines in a truncated trading week.


Domestic money markets will remain shut on Thursday and Friday due to Diwali and Diwali Balipratipada, respectively.


Traders will be cautious ahead of the outcome of the Federal Open Market Committee meeting, scheduled after market hours on Wednesday.


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


The swap rate in the one-year segment is seen at 4.15-4.40%, and that in the five-year at 5.50-5.75%.



At 1530 IST


1-year OIS



2-year OIS



5-year OIS



2-year MIFOR



5-year MIFOR






Edited by Snigdha Kuttikat



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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