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India IRS Review: Mixed; 5-year OIS ends up tracking jump in crude

Informist, Thursday, Jun 9, 2022

 

By Shubham Rana

 

NEW DELHI – Overnight indexed swap rates ended on a mixed note today with the 5-year swap rising, tracking a jump in crude oil prices, dealers said.

 

The one-year swap rate ended at 6.23% against the previous close of 6.22%, and the five-year swap rate closed at 7.12% against 7.09% on Wednesday.

 

Traders paid higher fixed rates in the 5-year OIS as crude oil prices and US Treasury yields rose in early trade. Later in the day, however, some traders unwound their paid positions as crude oil prices and US Treasury yields eased from the day’s highs.

 

After surging past $124 a bbl earlier, the Brent crude contract for August delivery fell to $123.07 a bbl. Meanwhile, the yield on the 10-year benchmark US Treasury note was at 3.02%, after rising to 3.06% earlier in the day.

 

Brent crude oil prices jumped to a 13-week high on signs of higher demand for the fuel in the US and China amid growing supply concerns in several countries. 

 

US Treasury yields ended higher on Wednesday as investors took positions before inflation data, due on Friday. Muted demand at the 10-year bond auction also pushed yields higher.

 

“OIS rates were largely not moving much today, because today’s trade is sandwiched between policy – which saw some rebalancing – and then there’s exposure to macro risk with US CPI tomorrow (Friday) and then domestic CPI on Monday,” a dealer at a primary dealership said.

 

The 1-year OIS ended close to Wednesday’s level amid muted trade volumes as traders avoided placing large bets after the outcome of the Monetary Policy Committee meeting on Wednesday was on expected lines, dealers said.

 

The Reserve Bank of India’s rate setting panel raised the repo rate by 50 basis points to 4.90% on Wednesday. In a poll by Informist, 28 of the 30 respondents said they expected the RBI to raise the repo rate by 30-50 basis points.

 

The 1-year OIS remains at elevated levels as traders are still looking at a terminal rate of close to 6% even as traders in the gilts market have revised their expectations of the terminal rate to close to 5.50-5.75%, dealers said.

 

“If the RBI is looking at neutral rate from Jan-Mar inflation, then the terminal rate expectations remain close to 6%,” said a dealer at another primary dealership.

 

RBI Deputy Governor Michael Patra on Wednesday said the inflation forecast of 5.8% for Jan-Mar could be considered guidance for arriving at a neutral rate.

 

OUTLOOK

Swap rates are seen steady on Friday amid lack of fresh triggers, after the outcome of the Monetary Policy Committee meeting on Wednesday was on expected lines.

 

Traders may avoid placing large bets due to caution before the release of US CPI data, due after market hours on Friday, ahead of the Federal Open Market Committee meeting next week.

 

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 6.10-6.40%, and the five-year at 6.95-7.20%.

 

 

At 1530 IST

Wednesday

1-year OIS

6.23%

6.22%

2-year OIS

6.71%

6.71%

5-year OIS

7.12%

7.09%

2-year MIFOR

6.49-6.56%6.36-6.50%

5-year MIFOR

6.79-6.94%6.74-6.88%

 

End

 

US$1 = 77.77 rupees

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

 

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.

 

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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