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India IRS Review: Rise tracking jump in US yields; MPC minutes eyed

Informist, Friday, Apr 22, 2022

 

By Shubham Rana

 

NEW DELHI – Overnight indexed swap rates ended higher today as offshore traders paid higher fixed rates across maturities noting the surge in US Treasury yields after Federal Reserve Chair Jerome Powell said a 50-basis-point rate hike was “on the table” at the Fed’s next policy meet in May, dealers said.

 

The one-year swap rate settled at 4.98% against the previous close of 4.95%, and the five-year swap rate closed at 6.57% as against 6.52% on Thursday.

 

The yield on the 10-year benchmark US Treasury note rose to as much as 2.97% today after Powell said it would be appropriate to move quickly to hike the interest rates. 

 

A 50 bps rate hike by the Fed will likely force the Reserve Bank of India’s Monetary Policy Committee to raise the repo rate at its next meeting in June, dealers said.

 

Moreover, domestic traders paid higher fixed rates ahead of the release of the Monetary Policy Committee meeting minutes, due later today, dealers said.

 

“If the policy was so hawkish, then the minutes can only be a guidance for a rate hike in June,” a dealer at a private bank said.

 

Traders will look for policymakers’ comments on the level of accommodation they are comfortable with in the near future and when the committee thinks the interest rate hike should begin, dealers said.

 

The RBI, in a surprise move, reduced the liquidity adjustment facility corridor by 40 bps on Apr 8 and said that the Monetary Policy Committee was moving away from an ultra-accommodative monetary policy. This has led traders to pay higher fixed rates, pushing swap rates sharply higher.

 

The 5-year swap rate has risen 56 bps since the MPC announced it was moving away from an accommodative stance on Apr 8.

 

OUTLOOK

Swaps are not traded on Saturdays.

 

On Monday, swap rates will open taking cues from the minutes of the Monetary Policy Committee’s last meeting, which will be released later today.

 

Traders will look for cues on when the committee will move to a neutral policy stance and hike the repo rate.

 

The committee’s signal of its stance becoming less accommodative may put upward pressure on OIS rates.

 

Any sharp movement in crude oil prices and US Treasury yields might lend cues when the market opens.

 

The swap rate in the one-year segment is seen at 4.85-5.10% and the five-year at 6.40-6.65%.

 

 

At 1530 IST

Thursday

1-year OIS

4.98%

4.95%

2-year OIS

5.83%

5.77%

5-year OIS

6.57%

6.52%

2-year MIFOR

6.60-6.75%6.54-6.68%

5-year MIFOR

6.88-7.03%6.83-6.97%

 

End

 

US$1 = 76.48 rupees

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

 

Edited by Aditya Sakorkar

 

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.

 

Informist Media Tel +91 (11) 4220-1000

Send comments to [email protected]

 

© Informist Media Pvt. Ltd. 2022. All rights reserved.

Source: Cogencis

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