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India IRS Review: Mixed; 5-yr swap slumps tracking fall in US yields

Informist, Thursday, Jun 30, 2022


By Aaryan Khanna


NEW DELHI – Overnight indexed swap rates ended on a mixed note today, with the five-year contract slumping as traders unwound their fixed rate positions tracking an overnight slide in US Treasury yields, dealers said.


The one-year swap rate ended at 6.35%, against the previous close of 6.37%. The five-year swap rate closed at 6.88%, against 6.96% on Wednesday.


The yield on the 10-year benchmark US Treasury note slumped 10 bps to 3.10% on Wednesday as investors assessed the economic outlook after data showed US Jan-Mar GDP growth unexpectedly contracted by a revised 1.6%.


On the other hand, US Federal Reserve Chairman Jerome Powell said that while there is a risk that interest rate increases could slow the economy too much, the bigger risk was persistent inflation, indicating a sharp pace of rate hikes.


Traders also booked profits on their five-year swap holdings that they had made after the Reserve Bank of India’s rate hikes. Sustained rate hikes past two years look uncertain due to the hit to economic growth anticipated by tighter monetary policy measures, dealers said.


“The overseas paying has come down significantly since talk about recession has started and the domestic market is net received,” said a dealer at a private bank.


“The OIS curve has a tendency to come down some more after the surge post-rate hikes.”


However, traders did not unwind their paid positions in short-term swap rates to protect the value of their underlying securities due to fears of rate hikes in the near term, both by global and domestic central banks, dealers said.


Domestic interest rate view remains broadly unchanged, with the market anticipating a 50 basis point rate hike in the August policy review, dealers said.


“The one-year swap is elevated because it is the key point for hedging short-term cash instruments and so on, where there’s a possibility of further pain,” the dealer quoted above said.



On Friday, swaps are seen steady as traders may keep to the sidelines due to lack of significant domestic cues.


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 6.20-6.55%, and the five-year at 6.85-7.10%.



At 1530 IST


1-year OIS



2-year OIS



5-year OIS



2-year MIFOR


5-year MIFOR





US$1 = 78.97 rupees


Edited by Ashish Shirke


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Source: Cogencis

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