Informist, Tuesday, Aug 30, 2022
By Shubham Rana
NEW DELHI – Overnight indexed swap rates ended sharply lower today, reversing most gains made on Friday, because of corporate flows as well as a fall in crude oil prices and US yields during the day, dealers said.
The one-year overnight indexed swap rate settled at 6.32%, against 6.40% on Monday, while the five-year swap rate closed at 6.44% against 6.54% the previous day.
The five-year OIS fell today as a large corporate house received fixed rates to mitigate its interest rate risks for a recently issued 10-year bond, dealers said.
"Today, the fall was largely because of corporate flows," a dealer at a private bank said. "This is just interest rate hedging by the corporate, but the size of flows is quite large."
Moreover, some traders received fixed rates on the view that the rise in the five-year swap on Monday was overdone, dealers said.
Swap rates had jumped on Monday because of a rise in US Treasury yields after US Federal Reserve Chair Jerome Powell said on Friday that rate hikes would continue, dealers said.
Today, the Brent crude contract for October delivery slumped nearly 3% from Monday's settlement to $102 a bbl as fears of a slowdown in global demand due to soaring inflation offset concerns about supply cuts from oil producers.
Meanwhile, the yield on the 10-year US Treasury note fell nearly 6 bps from Monday's close of 3.12% today.
"Even if the one-year OIS has come down sharply today, it is still reflecting market expectations of a sharp rate hike in September," a dealer at another private bank said. "With Fed expected to continue with 75-bps rate hikes, the Reserve Bank of India is also expected to hike aggressively to try and arrest capital outflows."
OUTLOOK
Money markets will be shut on Wednesday on account of Ganesh Chaturthi.
Swaps are seen steady on Thursday as traders may keep to the sidelines amid lack of significant domestic cues.
Any movement in US Treasury yields and crude oil prices may lend cues at open.
The swap rate in the one-year segment is seen at 6.25-6.50%, and in the five-year segment at 6.40-6.65%.
| At 1530 IST | Monday |
1-year OIS | 6.32% | 6.40% |
2-year OIS | 6.35% | 6.44% |
5-year OIS | 6.44% | 6.54% |
2-year MIFOR | 6.34-6.46% | 6.33-6.45% |
5-year MIFOR | 6.64-6.76% | 6.63-6.75% |
End
US$1 = 79.45 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Avishek Dutta
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