India IRS Review: Down; US ylds fall, traders expect benign Dec CPI

Informist, Thursday, Jan 12, 2023


By Anjali


MUMBAI – Overnight indexed swap rates ended lower today, tracking an overnight fall in US Treasury yields. Treaders also unwound their paid fixed rate bets across tenures ahead of the release of both domestic and US inflation prints after market hours today, dealers said. 


The one-year swap rate settled at 6.61%, as against 6.64% on Wednesday. The five-year swap rate ended at 6.25%, against Wednesday's close of 6.29%. 

The yield on the benchmark 10-year US Treasury note fell by 7 basis points to 3.54% on Wednesday compared to Tuesday's close. US Treasury yields fell due to expectations of inflation easing in the world's largest economy.


"With US CPI coming in, US yields could fall even further, so it was wise to unwind their paid position in the five-year swap rates at the current US yield level," a dealer at a primary dealership said. 


Traders expect US inflation data for December to be much lower than last month, making the case for the Federal Open Market Committee to moderate its rate-hike pace, dealers said. The headline US CPI inflation print may moderate to 6.5% in December from 7.1% in November, according to Reuters.


A majority of Fed funds traders expect only a 25-bps rate hike at the next Federal Open Market Committee meeting in February, after a 50-bps rate increase in December, according to the CME Group's FedWatch tool.


"Receiving of fixed rates remained limited in the shorter end of the OIS curve, which are more sensitive to changing rate view, as traders do not expect rate cuts anytime soon," a dealer at another primary dealership said. 


The short-term swap rates have fallen less than those of longer tenures as rates are expected to stabilise from hereon. The one-year swap contract has fallen 15 bps this week, while the five-year contract has fallen 23 bps since Friday's close. The RBI's Monetary Policy Committee is seen hiking the policy repo rate by 25 bps to 6.50% in February, before pausing for the rest of 2023, dealers said.



On Friday, swap rates are seen taking cues from the CPI inflation data for December.


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 6.50-6.70%, and the five-year at 6.20-6.40%.



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


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