India IRS Review:Sharply up on aggressive Fed rate view, crude surge

Informist, Thursday, Dec 15, 2022

By Anjali

MUMBAI – Overnight indexed swap rates jumped today as traders paid fixed rates after the US Federal Reserve suggested it would keep hiking rates in 2023, dealers said.

The 1-year swap rate settled at 6.64% compared with 6.60% on Wednesday, while the 5-year swap rate ended at 6.28%, against the previous day’s close of 6.21%.

The Fed’s focus is not on rate cuts but on reaching a policy stance that restricts inflation down to the 2% target, Chair Jerome Powell said at the post-policy press conference.

According to the median of projections by US Fed officials, the policy rate is seen at 5.00-5.25% at the end of 2023, indicating a net rate increase of another 75 basis points.

Today, the US Federal Open Market Committee hiked policy rates by an expected 50 bps to put the federal funds rate in a target range of 4.25%-4.50%, its highest level since early 2008.

“The mutual funds were active in the market today, and paid fixed interest after the yield on the benchmark 10-year 7.26%, 2032 bond rose due to aggressive Fed rate view,” a dealer at a private bank said.

Mutual funds typically pay fixed rates to protect their underlying positions in the fixed income market, dealers said.

The 10-year benchmark gilt yield rose 5 bps to 7.27% today, largely due to Fed’s commentary and caution ahead of the weekly gilt auction on Friday, dealers said.

The overnight rise in crude oil prices also triggered paying in the swap rates, dealers said.

Brent crude for February delivery rose nearly 3% to $82.70 per barrel on Wednesday after the Organization of Petroleum Exporting Countries and the International Energy Agency forecast a rebound in demand over the next year.

“The domestic gilts market was very bearish today, that triggered paying in the OIS market,” a dealer at a primary dealership said.

OUTLOOK

On Friday, swap rates are seen opening steady as traders may avoid large bets due to a lack of significant cues.

Foreign market participants may keep to the sidelines near the year-end as they close their accounts.

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

The swap rate in the one-year segment is seen at 6.55-6.75%, and the five-year at 6.20-6.35%.

At 1530 IST

Wednesday

1-year OIS

6.64%6.60%

2-year OIS

6.34%6.26%

5-year OIS

6.28%6.21%

2-year MIFOR

6.39-6.51%6.35-6.47%

5-year MIFOR

6.57-6.69%6.53-6.65%

End

US$1 = 82.76 rupees

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

Edited by Aditya Sakorkar

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Source: Cogencis