India IRS Review: Mixed before MPC meet outcome; US ylds push 5-yr up

Informist, Tuesday, Dec 6, 2022

By Nishat Anjum

MUMBAI – Rates on overnight indexed swaps ended on a mixed note today, with that on the one-year swap closing unchanged and the five-year swap rising tracking a jump in US Treasury yields, dealers said.

The one-year swap rate settled flat at 6.61%. The five-year swap rate ended at 6.30%, against the previous close of 6.26%.

“There was paying in swap rates as the US Treasury yields were high. The market is also waiting for the policy tomorrow (Wednesday),” a dealer at a private bank said. “Even if a 35 basis points hike is expected, the tone of the statement will give the market a future rate hike view.”

US Treasury yields surged on Monday after services sector activity and factory output data indicated economic recovery. This raised fears that interest rates would remain high for a long time.

Even as the five-year swap rate rose, the one-year ended flat as the market has already factored in a 35 bps hike by the Reserve Bank of India, dealers said.

According to an Informist poll of 30 respondents, comprising banks, mutual funds and rating agencies, a majority expect the RBI’s rate-setting panel to hike the repo rate by 35 bps.

Some traders repositioned themselves ahead of the policy outcome on expectations that the central bank might not stop the rate hikes after December meeting, dealers said.

“Market already expects a 35 bps hike, which is why the movement in the 1-year swap rate was limited,” a dealer at a primary dealership said. “We will have to wait to see what the RBI does but we expect the central bank to be hawkish in its commentary on Wednesday.”

OUTLOOK

On Wednesday, swap rates are seen steady as traders may stay on the sidelines ahead of the RBI’s Monetary Policy Committee meeting outcome on Wednesday.

The rate-setting panel is expected to hike the repo rate by 35 bps.

Traders may also watch out for any sharp movement in the US Treasury yields and crude oil prices at open.

The swap rate in the one-year segment is seen at 6.55-6.70%, and the five-year at 6.20-6.35%.

At 1530 IST

Monday

1-year OIS

6.61%6.61%

2-year OIS

6.37%6.34%

5-year OIS

6.30%6.26%

2-year MIFOR

6.31-6.43%6.37-6.49%

5-year MIFOR

6.56-6.68%6.60-6.72%

End

US$1 = 82.62 rupees

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

Edited by Ashish Shirke

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Source: Cogencis