India IRS Review: Off highs; corp receiving caps rise in 5-year swap

Informist, Thursday, Oct 6, 2022


By Aaryan Khanna


NEW DELHI – Overnight indexed swap rates ended off highs as a corporate house received fixed rates in the five-year contract. Traders also capped a rise in key short-term swap rates amid an anchored domestic rate view, dealers said.


The one-year overnight indexed swap rate settled at 6.94%, against 6.88% on Tuesday. The five-year swap fell 18 basis points to close at 6.93%, against 6.88% the previous day.


Swap rates had jumped early in the day, tracking a sharp rise in US Treasury yields and crude oil prices on Wednesday.


The yield on the 10-year US Treasury note jumped by 14 basis points to 3.76% on Wednesday after economic data indicated the US Federal Reserve would not pivot from sharp monetary policy tightening.


Meanwhile, crude oil futures surged after the Organization of the Petroleum Exporting Countries and its allies agreed to further tighten global oil supply with an agreement to slash crude production by about 2 mln barrels per day. Brent crude for December delivery rose over 1.5% to settle at $93.37 a bbl on Wednesday, after the decision.


While both triggers remained largely steady during the day, OIS rates fell from highs as a large corporate house received fixed rates in the five-year segment, dealers said. Some dealers speculated it was due to an upcoming bond issuance by the corporate house.


"A large corporate received fixed rates in the five-year segment to keep the rates down, definitely," a dealer at a private bank said. "Whether it is for some upcoming bond issuance or for a previous exposure, we can't be sure at this point."


Meanwhile, the one-year swap rate charted a similar trajectory and ended off lows as domestic traders received fixed rates, noting an anchored rate view, dealers said.


The rate view for India was currently leaning towards a 35 bps hike at the December policy review and a terminal repo rate of at least 6.50%, dealers said.


Foreign investors continued to pay fixed rates in the segment amid caution over coordinated and aggressive rate hikes by central banks, dealers said.


With the large quantum of domestic receiving in the segment that has kept the benchmark rates under 7%, a further rise in US Treasury yields could lead to sharp unwinding of received fixed rate bets, dealers said.


The focus had now shifted to key data in the coming week, including CPI inflation prints for September in both the US and India, dealers said.



On Friday, swap rates may open steady due to lack of fresh triggers on interest rates, dealers said.


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 6.80-7.10%, and in the five-year segment at 6.80-7.10%.



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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