India IRS Review: Steady; trade dull as traders keep to sidelines

Informist, Friday, Dec 23, 2022

By Nishat Anjum

MUMBAI – Overnight indexed swap rates ended steady today as traders stayed on the sidelines because the domestic market lacked significant cues, dealers said.

The one-year swap rate settled flat at 6.69%, while the five-year swap rate ended at 6.39%, against Thursday’s close of 6.37%.

Volume was thin as foreign banks closed their books of accounts at the end of the calendar year, drying up counterparties for swap trades, dealers said.

Dealers were also not keen on placing large bets without triggers, particularly with the trajectory of domestic rate hikes constant, dealers said.

The market expects the Monetary Policy Committee to raise rates by 25 basis points in February to 6.50%, and then signal a prolonged pause in its policy action.

In the early trade, offshore traders paid fixed rates as crude oil prices were up for the third consecutive day since Wednesday, dealers said.

The Brent crude contract for February delivery was at $82.64 per barrel at the close of Indian market hours, against $81.67 per bbl on Thursday, due to renewed supply concerns of Russian crude.

“In the morning, the OIS kept inching up as both the US Treasury yields and crude oil prices rose,” a dealer at a private bank said. “Traders are still of the view that pause in rate hikes is not near, especially after Bank of Japan increased their yield fluctuation band.”

The Bank of Japan on Wednesday increased the yield cap on long-term bonds by allowing yields to fluctuate by 50 basis points above and below its 0% target, against 25 bps earlier.

The yield on the benchmark 10-year US Treasury note rose to 3.69% at the beginning of Indian trade from 3.64% at the end of Indian market hours on Thursday, ahead of key inflation data due after market hours today.

Some dealers are of the view that rising COVID-19 cases in China will affect the demand for commodities like crude oil, which may limit any upward inflationary pressure on oil importers like India.

On the domestic front, the fresh gilt supply worth 280 bln rupees at the weekly auction also prompted traders to pay fixed rates in the five-year swap to protect their underlying government bond investments, dealers said.

“In the auction, demand for the 2052 paper came from insurance companies, so there was natural paying in the OIS,” a dealer at another private bank said.

OUTLOOK

Swaps are not traded on Saturdays.

On Monday, swap rates are seen opening steady as traders may avoid large bets due to 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 6.65-6.80%, and the five-year at 6.30-6.50%.

At 1700 IST

 Thursday

1-year OIS

6.69%6.69%

2-year OIS

6.39%6.39%

5-year OIS

6.39%6.37%

2-year MIFOR

6.50-6.62%6.46-6.58%

5-year MIFOR

6.71-6.83%6.66-6.78%

End

US$1 = 82.86 rupees

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

Edited by Avishek Dutta

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Source: Cogencis