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Thursday, September 29, 2022

India IRS Review: Slump tracking sharp fall in US yields, crude

Informist, Wednesday, Jul 6, 2022


By Aaryan Khanna


NEW DELHI – Overnight indexed swap rates slumped today, tracking a sharp overnight fall in US Treasury yields and crude oil prices due to fears of a global economic downturn, dealers said.


The one-year OIS rate ended at 6.23% as against 6.31% on Tuesday, and the five-year swap rate fell to 6.66% from its previous close of 6.76%.


On Tuesday, oil prices plunged 9% in the biggest daily drop since March due to mounting worries of a global economic downturn and lockdowns in China that could reduce demand for petroleum products.


Crude prices have pulled back from their recent highs as central banks globally tighten monetary policy to curb inflation and analysts cut their demand forecasts for the commodity.


The Brent crude oil contract for September delivery plunged to settle at $102.77 a bbl on Tuesday, and rose slightly to $104 a bbl by the end of Indian trading hours.


Crude oil prices have been a major sticking point for inflation concerns, with prices of other commodities having declined by over 25% over the past three months, easing concerns of imported inflation, dealers said.


Moreover, the yield on the 10-year benchmark US Treasury note fell 9 basis points to 2.82% on Tuesday and a key part of the yield curve inverted for the first time in three weeks due to a surge in demand for safe-haven US debt.


“OIS rode the entire train down when crude fell. There are different levels to receive when crude is at $115-a-bbl and when it is at $105-a-bbl,” a dealer at a private bank said.


Despite aggressive moves today, traders expect volatility to continue after the minutes of the US Federal Open Market Committee’s June meeting are released after market hours today, dealers said.


With the global growth outlook uncertain, the one-year swap rate also fell as traders received fixed rates on the view that the Reserve Bank of India may be less aggressive with its monetary policy tightening, dealers said.


Since May, the RBI has raised the repo rate by a cumulative 90 bps. Although further rate increases are likely, recent comments by members of the rate-setting panel hint at growing concern of rate hikes impinging on economic growth.


Earlier, OIS rates had priced in a 50-basis-point repo hate hike at the upcoming policy review in August, dealers said.


“If crude continues at these levels, there is a strong case to be made that India would not require more than a 25-35 bps increase in rates in August,” a dealer at a primary dealership said.



On Thursday, swaps are seen steady due to caution before the release of the minutes of the June meeting of the US Federal Open Market Committee, set for release after market hours.


Traders may gauge the impact of the RBI’s liberalised foreign investment measures on the rupee and gilts for cues on interest rate swaps, dealers said.


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 6.10-6.45%, and the five-year at 6.55-6.80%.



At 1530 IST


1-year OIS



2-year OIS



5-year OIS



2-year MIFOR


5-year MIFOR





US$1 = 79.30 rupees


Edited by Vidhi Verma


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Cogencis news is now Informist news. 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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