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India IRS Review: End down as large corporate receives fixed rates

Informist, Tuesday, May 24, 2022


By Shubham Rana


NEW DELHI – Overnight indexed swap rates ended lower today, likely as a large corporate house received fixed interest rates to balance risk on its bond issue, dealers said.


The one-year swap rate settled at 6.12% as against the previous close of 6.15%, while the five-year swap rate closed at 6.93% compared with 7.00% on Monday.


A large corporate was seen hedging fixed-rate liability on the bonds issued today by receiving the fixed rate in OIS. A private sector bank also received fixed interest rates, dealers said.


As the corporate paid fixed rates to their subscribers, the company looked to hedge their interest rate exposure through overnight indexed swap rates, dealers said.

The lender received a large quantum of fixed interest rates in the five-year OIS contracts, pushing the swap rate lower.


As counterparties paid fixed interest rates to the corporate in the swap market, they stepped up purchases in government bonds to balance their own interest rate risks, with no trigger to prompt a change in view today, dealers said.


The buys spurred a fall in the 10-year benchmark gilt yield by 4 basis points today.


Moreover, traders unwound their paid positions after Reserve Bank of India Governor Shaktikanta Das said the central bank is looking to hike interest rates over the next few policy meetings but the expectation of the repo rate being raised to its pre-pandemic level of 5.15% may not be accurate.


“The comments by the Governor on Monday were positive for swap rates. OIS is very overpaid right now,” a dealer at a foreign bank said. “While other markets are expecting a 25-50 bps hike in the June policy, the OIS market is seeing a 75 bps hike, which is most likely not going to happen.”


The 1-year OIS has come down 9 bps since Friday as traders have unwound their paid positions after the Centre took steps on Saturday to bring down the near eight-year-high inflation, including a sharp cut in the excise duty on petrol and diesel. India’s annual inflation rate based on CPI rose to 7.79% in April.

“The OIS rates will remain near these levels till a few days from the June policy meeting, when traders would look to enter paid positions,” the dealer said.



On Wednesday, swap rates are seen steady amid a lack of fresh cues on interest rates, dealers said.


Some traders may look to receive fixed rates on view that the Reserve Bank of India’s Monetary Policy Committee may not hike rates aggressively after the Centre announced a host of measures to bring down the rising inflation, dealers said.


Traders who had placed large bets in the one-year OIS on view of a 75-bps rate hike may look to unwind their paid positions.


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 6.00-6.30%, and the five-year at 6.90-7.15%.



At 1530 IST


1-year OIS



2-year OIS



5-year OIS



2-year MIFOR


5-year MIFOR





US$1 = 77.58 rupees

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


Edited by Michael Correya



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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