Informist, Friday, Dec 16, 2022
By Shubham Rana
MUMBAI – Overnight indexed swap rates ended slightly higher today because traders paid higher fixed rates after comments from global central banks indicated that rate hikes will continue in order to control inflation, dealers said.
The 1-year swap rate settled at 6.66% compared with 6.64% on Thursday, while the 5-year swap rate ended at 6.32%, against the previous day’s close of 6.28%.
The Federal Open Market Committee raised its policy rate by 50 basis points on Thursday and a median of projections by US Federal Reserve officials sees the policy rate at 5.00-5.25% at the end of 2023.
On Thursday, the European Central Bank and Bank of England, too, raised their interest rates by 50 bps each and suggested further rate hikes. European Central Bank President Christine Lagarde stressed on further rate hikes as the central bank had much ground to cover in its fight against inflation.
“There is no new factor in the domestic market which is why swaps rose because of the bearish global sentiment,” a dealer at a foreign bank said.
Volume was low today as traders kept to the sidelines due to lack of cues, dealers said. Offshore traders stayed on the sidelines ahead of the end of calendar year, when banks in Europe and the US close their books, dealers said.
“Swaps were very volatile for the past few months, but that volatility has come down now,” a dealer at a private bank said. “OIS market should stay dull like this at least till the start of January when foreign players return.”
The fall in the 1-year OIS was limited compared to 5-year swap as the domestic rate hike view is firmly set at 25 bps for February, dealers said.
OUTLOOK
Swaps are not traded on Saturdays.
On Monday, 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%.
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Maheswaran Parameswaran
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