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Monday, March 27, 2023

India IRS Review: Off lows tracking rise in government bond yields

Informist, Thursday, Feb 2, 2023


By Nishat Anjum

MUMBAI – Overnight indexed swap rates ended off the day’s lows, tracking the movement in government bonds, dealers said. Yields on government bonds rose as traders sold their bond holdings at a profit during the day, dealers said.

Tracking the rise in bond yields, both the one- and five-year swap rates inched higher from their day’s low of 6.62% and 6.10%, respectively, towards the end of market hours. The one-year swap rate settled at 6.65%, against 6.67% on Wednesday. The five-year swap rate ended at 6.16%, against the previous close of 6.18%.


“Basically, the OIS market followed the gilt market. As the gilts were down, paying started in swap rates as well,” a dealer at a primary dealership said. “There are no other visible factors for the paying interest.”


Swap rates fell in early trade as traders received fixed rates after US Treasury yields slumped following a 25-basis-point hike in the federal funds rate target range by the US Federal Reserve, dealers said. Comments by Fed Chair Jerome Powell indicated that the US rate-setting panel could soon be done raising interest rates, further prompting traders to receive fixed rates.


The yield on the benchmark 10-year US Treasury note slumped 13 bps to 3.39% on Wednesday compared to Tuesday’s close. 


Some traders also unwound their paid fixed rate bets after the outcome of the US Federal Open Market Committee meeting, dealers said. In the run-up to the US Federal Open Market Committee’s policy review, traders had paid fixed rates due to uncertainty around Powell’s commentary, dealers said.


At the conclusion of the US FOMC meeting early on Thursday, Powell was seen to be less insistent that the US rate-setting panel would keep rates higher for longer. However, he did say it was too soon to declare victory against inflation, setting the stage for another rate hike at the committee’s next meeting in March. “We’re just going to have to see how fast inflation comes down,” Powell said. “Our forecast is that it will take longer to achieve, and we’ll have to keep rates higher for longer, but we’ll see.”


However, some dealers were left bewildered by the paying interest from other sections of the market even after the rate outlook moderated.


“It seems like people want to trade in a range despite the global rates seen coming down,” a dealer at a private bank said. “US FOMC and Union Budget are both behind us, I frankly do not understand the reason behind the paying.”



On Friday, overnight indexed swap rates are seen opening steady due to lack of significant domestic cues, dealers said.


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 6.60-6.80%, and the five-year at 6.10-6.25%.



At 1700 IST


1-year OIS


2-year OIS


5-year OIS


2-year MIFOR


5-year MIFOR





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


Edited by Avishek Dutta


For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.


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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