India IRS Review: Mixed; 5-year OIS jumps on surge in crude, US ylds

Informist, Wednesday, Oct 6, 2021


NEW DELHI – Overnight indexed swap rates ended on a mixed note, with the one-year OIS steady but traders paying higher rates on longer-term swaps, tracking an overnight surge in crude oil prices and US Treasury yields, dealers said.


The one-year rate ended at 4.03%, flat compared to Tuesday, and the five-year swap rate ended at 5.43% against the previous close of 5.38%.


At their ministerial meeting on Monday, the Organization of the Petroleum Exporting Countries and its allies stuck to their plan to raise output by only 400,000 barrels per day every month till the end of the year despite calls from major consumers to step up production to ease oil prices.


The Brent crude oil futures contract for December delivery surged over $1.30 per bbl to settle at $82.56 per bbl on Tuesday, jumping 4.1% over the last two days. Typically, a rise in crude oil prices increases upside risks to inflation in India and cuts into the room for the Reserve Bank of India to prolong its monetary policy accommodation.


US Treasury yields also rose as the threat of a debt default by the world's largest economy grew owing to political disagreement. Yields also rose due to concern about the pace of economic recovery ahead of key US jobs data that will be released on Friday.


The yield on the 10-year Treasury note surged 5 basis points to 1.54% on Tuesday, the first time in three days that it breached the psychologically-crucial 1.50% mark. Foreign investors were paying higher fixed rates as overseas rates rose and found willing receivers at the elevated levels in the five-year OIS, dealers said. 


"OIS rates are always volatile in transition periods like this, and I think rates will only come down — both in the short- and long-end — after the policy because I don't think the RBI will want to shake the boat too much so quickly," a dealer at a primary dealership said.


The RBI's Monetary Policy Committee began its October meeting today, with the outcome to be announced on Friday. Comments by RBI Governor Shaktikanta Das on inflation and growth are expected to be in focus when he addresses the media at the outcome of the policy review, dealers said.


Meanwhile, short-maturity swap rates saw heavy trade volumes as traders undertook fresh paid positions as the one-year swap rate steadied above 4% to price in for a potential rate hike announcement or a ramp-up of liquidity management measures by the RBI after the ongoing policy meeting.


However, traders paying fixed rates did not tender aggressively, keeping the rate flat, as the one-year OIS has risen 16 basis points over the past fortnight, dealers said.


"There was heavy trade today but it's just to consolidate the one-year rate, there's no movement on liquidity expectations from the market as such, so up to one-year (OIS) was pretty stable," a dealer at a private bank said.



On Thursday, OIS rates are expected to open steady as dealers may avoid large bets.


Rates are now seen in a narrow range in the near term due to the recent volatility and the ongoing monetary policy meeting of the RBI.


Any sharp movement in crude oil prices and US Treasury yields overnight may lend cues at open.


The swap rate in the one-year segment is seen at 3.90-4.10%, and in the five-year at 5.20-5.45%.



At 1530 IST


1-year OIS



2-year OIS



5-year OIS



2-year MIFOR



5-year MIFOR






Edited by Avishek Dutta


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