Indian long end OIS rise tracking bond yields
MUMBAI: India's long end overnight indexed swaps ( OIS )) rose on Friday tracking the rise in government bond yields but the shorter-end stayed steady with expectations of a 25 basis points rate hike factored into prices.
The benchmark five-year swap rate ended at 8.04 per cent, up 5 basis points from Thursday. It traded in the range of 7.69-8.06 per cent.
The one-year swap rate closed down 1 basis point on the day at 7.41 per cent. It traded in the range of 7.38-7.43 per cent.
The yield on the most traded 8.08 per cent, 2022 bond ended at 8.25 per cent, up from 8.21 per cent at close on Thursday.
There is now a view that the expectations may have been more hawkish than warranted and the paying may have been overdone, dealers said, adding that those positions are now being pared.
"There was some receiving as now the view is not as hawkish as it was since the last one week. We are also expecting some pro-liquidity measures," said a dealer at a private bank.
However, the overall undertone remained cautious ahead of the 110-billion-rupee bond auction details, high inflation, and rising oil prices.
"Swaps will remain quiet until there is something highly unexpected at the bond auction results," said a foreign bank dealer.
Majority of analysts expect the Reserve Bank of India (RBI) to hike key policy rate on Tuesday, but predict the slump in industrial production growth could stave off a bigger rate hike as RBI will have to balance inflation and economic recovery.
"There are some offshore investors who are bearish on India given high inflation and oil prices. They have a paying bias which has been putting upwards pressu! re on sw aps since the last 7-10 days," the private bank dealer said.
India's food price index rose 15.52 per cent and the fuel price index climbed 11.53 per cent in the year to Jan. 8. In the prior week, annual food and fuel inflation stood at 16.91 per cent and 11.53 per cent.
The benchmark five-year swap rate ended at 8.04 per cent, up 5 basis points from Thursday. It traded in the range of 7.69-8.06 per cent.
The one-year swap rate closed down 1 basis point on the day at 7.41 per cent. It traded in the range of 7.38-7.43 per cent.
The yield on the most traded 8.08 per cent, 2022 bond ended at 8.25 per cent, up from 8.21 per cent at close on Thursday.
There is now a view that the expectations may have been more hawkish than warranted and the paying may have been overdone, dealers said, adding that those positions are now being pared.
"There was some receiving as now the view is not as hawkish as it was since the last one week. We are also expecting some pro-liquidity measures," said a dealer at a private bank.
However, the overall undertone remained cautious ahead of the 110-billion-rupee bond auction details, high inflation, and rising oil prices.
"Swaps will remain quiet until there is something highly unexpected at the bond auction results," said a foreign bank dealer.
Majority of analysts expect the Reserve Bank of India (RBI) to hike key policy rate on Tuesday, but predict the slump in industrial production growth could stave off a bigger rate hike as RBI will have to balance inflation and economic recovery.
"There are some offshore investors who are bearish on India given high inflation and oil prices. They have a paying bias which has been putting upwards pressu! re on sw aps since the last 7-10 days," the private bank dealer said.
India's food price index rose 15.52 per cent and the fuel price index climbed 11.53 per cent in the year to Jan. 8. In the prior week, annual food and fuel inflation stood at 16.91 per cent and 11.53 per cent.
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