Informist, Thursday, Apr 28, 2022
By Aaryan Khanna
NEW DELHI – Overnight indexed swap rates ended higher tracking a rise in government bond yields, with traders paying fixed rates particularly in long-term interest rates, dealers said.
The one-year swap rate settled at 5.03% against the previous close of 4.98%, and the five-year swap rate closed at 6.58% against 6.51% on Wednesday.
Traders paid fixed rates in the five-year OIS to protect their underlying gilt holdings. The 10-year benchmark gilt yield rose 8 basis points to 7.16% today.
The 10-year gilt fell out of favour ahead of the 330-bln-rupee weekly auction on Friday, at which the government has offered to sell 130 bln rupees of the paper.
Moreover, long-dated contracts gained as yield on the 10-year benchmark US Treasury note settled 5 bps higher at 2.82% on Wednesday.
US Treasury yields rose on Wednesday as investors reconsidered the outlook for global economic growth amid geopolitical and COVID-19 concerns ahead of the US Federal Reserve’s policy review next week, at which it is expected to hike rates by 50 basis points.
“Most of the paying was along the same lines as the gilts market, yields rose, so there was domestic interest in paying even past 6.50% (on the five-year swap),” a dealer at a primary dealership.
Short-term rates also rose as recent comments by policymakers indicated a 25 bps hike in the repo rate was almost certain at the Reserve Bank of India’s next policy review in June, dealers said.
Traders paid fixed rates in the OIS as the rate hike got closer. Additionally, some traders feared that the RBI may take steps to raise overnight rates to protect volatile currency fluctuations after the US Fed’s policy outcome on Wednesday.
“In the June policy, a 25 bps rate hike is expected and that should happen,” a dealer at a private bank said. “A 50 bps rate hike will not be a good move on the part of the committee.”
OUTLOOK
On Friday, swap rates are seen steady as traders may keep to the sidelines due to lack of major domestic cues on interest rates.
Any sharp movement in crude oil prices and US Treasury yields might lend cues when the market opens.
The swap rate in the one-year segment is seen at 4.85-5.10% and the five-year at 6.40-6.65%.
End
Edited by Aditya Sakorkar
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Source: Cogencis
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