Informist, Friday, Mar 11, 2022
By Shubham Rana
NEW DELHI – Overnight indexed swap rates ended sharply higher today because some offshore traders paid fixed interest rates after global yields rose on Thursday, especially in the Eurozone, dealers said.
The one-year swap rate settled at 4.56% against the previous close of 4.52% and the five-year swap rate closed at 5.98% against 5.90% on Thursday.
Offshore traders paid higher fixed rates, especially in the 5-year segment, noting a sharp rise in bond yields in the Eurozone as well as in the US, dealers said.
Eurozone bond yields soared on Thursday after the European Central Bank said it planned to end its asset purchase programme earlier than expected. US Treasury yields rose after inflation in the US rose to 7.9% in February.
The yield on the 10-year US Treasury note ended 4 basis points higher at 1.98% on Thursday.
The rise in the 5-year OIS was exacerbated as the swap topped the key technical level of 5.95%, and rose to as much as 5.99% during the day, dealers said.
“The theme is that crude is likely to stay higher and going into India CPI data, there have been some hedging flows,” a dealer at a private bank said. “Globally yields were higher yesterday and when global yields are higher, that generally leds to paying in the offshore OIS market.”
The rise in Brent crude prices past $110 per barrel in Asian trade today, after prices ended at $109.33 pe bbl on Thursday, also lead to traders paying fixed rates.
The escalation in the Russia-Ukraine war today also led to a rise in OIS rates, dealers said.
Today, Russian President Vladimir Putin backed a plan to allow volunteers from West Asia to fight in Ukraine, reports said. Russian strikes hit various parts of Ukraine, including areas near airports in western parts of the country, as the conflict escalated.
While the 5-year swap rose 8 basis points, the 1-year swap rose 4 bps.
“While 5-year sees inflows, it is not that 1-year will remain totally immune. There will be some kind of rub-on on that as well. It is all interlinked. We saw maximum impact in 3-year, 4-year and 5-year segment and then the impact of offshore flows got rubbed on to 1-year and 2-year as well,” the dealer said.
Traders stayed on the sidelines ahead of the release of India’s CPI inflation data after market hours on Monday.
According to the median of the estimated of 19 economists polled by Informist, inflation in February is expected to have moderated to 5.9% from a seven-month high of 6.01% in January.
OUTLOOK
OIS rates are not traded on Saturdays.
On Monday, swap rates are seen steady as traders may keep to the sidelines due to lack of major domestic cues on interest rates.
Traders may stay on the sidelines ahead of the release of India’s CPI data after market hours on Monday.
Traders will keep an eye on the geopolitical situation surrounding Ukraine for triggers, particularly in the five-year overnight indexed swap rate.
Any sharp movement in US Treasury yields and crude oil prices might also lend cues in opening trade.
The swap rate in the one-year segment is seen at 4.35-4.60% and the five-year at 5.75-6.00%.
End
US$1 = 76.59 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Avishek Dutta
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