India IRS Review: Mixed; 5-year swap up for second day as crude rises

Informist, Monday, May 30, 2022


By Aaryan Khanna



NEW DELHI – Overnight indexed swap rates ended on a mixed note with the five-year contract jumping for the second straight day as overseas investors paid fixed rates, tracking an overnight jump in crude oil prices. Short-term swap rates were steady.


The one-year swap rate ended at 6.19%, flat against the previous close, and the five-year swap rate closed at 6.96% compared with 6.89% on Friday.


Crude oil prices settled higher on Friday as the peak driving season in the US is about to start this week that is likely to increase demand for fuel in the country. 


Oil traders were concerned about tight supply as inventories of petrol and diesel have fallen in the US for the past few weeks. Russian oil supply, too, is sharply down and is expected to fall further if the European Union moves to ban supplies after Moscow's invasion of Ukraine."


The Brent crude oil contract for July delivery settled over $2 higher at $119.43 a bbl on Friday, and was above the key $120 a bbl mark at the end of Indian market hours. Typically, a rise in crude oil prices increases the risk of imported inflation in India and provides less room for Reserve Bank of India to prolong its monetary policy accommodation.


Moreover, the recent fall in the five-year tenure was seen overdone as crude oil prices remained elevated, dealers said. In the week to Thursday, the five-year OIS had eased by 30 bps on a corporate house receiving fixed rates.


"Last week's receiving has created some room to pay in the five-year OIS, so it has remained sensitive to oil prices coming up again to levels at which the RBI will not be comfortable," a dealer at a primary dealership said.


Meanwhile, traders avoided large bets in short-term swap rates ahead of the June policy review next week, dealers said.


The Monetary Policy Committee is widely expected to raise the policy repo rate by 50 basis points, following up on the off-cycle 40 bps hike enacted by the rate-setting panel earlier this month.


While rates are set to rise, dealers were of the view that policymakers in India will not be in favour of aggressive rate hikes that the one-year swap rate has factored in. Today, the Mumbai Interbank Offered Rate, the floating leg of the swap contract, settled at 4.30%, 189 bps below the one-year OIS rate.


"While the one-year (OIS) is overpaid at the moment, any sort of repricing or profit booking is likely to happen now either just before or just after the policy decision," a dealer at a private bank said.



On Tuesday, swap rates are seen steady amid lack of fresh domestic cues on interest rates, dealers said.


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 6.00-6.30%, and the five-year at 6.85-7.10%.



At 1530 IST


1-year OIS



2-year OIS



5-year OIS



2-year MIFOR


5-year MIFOR






US$1 = 77.54 rupees


Edited by Deepshikha Bhardwaj



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