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India IRS Review: Mixed; 5-year swap rises amid adverse global cues

Informist, Friday, Jan 28, 2022


By Aaryan Khanna


NEW DELHI – Overnight indexed swap rates ended on a mixed note, as traders paid fixed rates in the five-year segment due to fear that US Treasury yields and crude oil prices will remain elevated, despite overnight falls in both overseas triggers, dealers said.


The one-year swap rate ended at 4.50% against the previous close of 4.49%, while the five-year swap rate ended at 5.73% against 5.69% on Thursday.


Traders had booked profits on Thursday in the five-year OIS and had held off on paying fixed rates in excess of 5.70% even as the US Federal Reserve hinted that it would consider hiking its target rate for the first time in over three years at its next meeting in March. 


In his post-policy interaction with the media, Fed Chair Jerome Powell said on Thursday there was room for rate hikes without threatening the labour market and a will to reduce a substantial amount of the Fed’s balance sheet.


Today, overseas investors paid fixed rates because they were keen to push the five-year swap out of the upper bound as the yield on the 10-year US Treasury note was elevated above 1.80%, dealers said.


Domestic investors also drove rates higher in the five-year swap to protect their underlying gilt holdings, amid a period of uncertainty as government bond yields have shot up over the last two days. The yield on the new 10-year 6.54%, 2032 bond has risen 10 bps since Wednesday.


“Today has been a large amount of fresh positioning come in, and the market was lacking boldness the last two times we hit 5.70%,” a dealer at a primary dealership said.


“As the Fed has begun signalling its rate hikes and Brent (crude prices) doesn’t seem to be reversing from $90-per-bbl, there was some paying pressure today both from global and local players,” the dealer said.


Crude oil prices pulled back slightly on Thursday but traded between $89-90 per bbl during Indian market trading hours today. Brent crude futures hit a seven-year-high above $90 a barrel in each of the last two days as the market balanced fears of tight global supply with expectation that the US Fed would tighten policy quicker, as it had signalled.


Meanwhile, the one-year swap rate ended steady as traders cited lack of significant domestic cues to place aggressive bets, dealers said. However, volumes were elevated as traders adjusted their rate bets heading into major policy decisions including the Union Budget on Tuesday and the Reserve Bank of India’s next policy review in the second week of February, dealers said.


“The accelerated pace of the Fed’s rate hikes, or at least what is expected now, has led to some rate uncertainty on the domestic front, but that had been priced in yesterday (Thursday) so there aren’t any major cues before policy any more,” a dealer at a private bank said.



Swap rates are not traded on Saturdays.


OIS rates are seen steady on Monday as traders may stay on the sidelines on lack of significant cues on interest rates.


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


The swap rate in the one-year segment is seen at 4.35-4.60% and the five-year at 5.55-5.80%.



At 1530 IST


1-year OIS



2-year OIS



5-year OIS



2-year MIFOR



5-year MIFOR






US$1 = 75.04 rupees


Edited by Avishek Dutta


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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