scorecardresearchIndia's 1-5-year OIS spread drops to lowest in 29 months

India's 1-5-year OIS spread drops to lowest in 29 months

Updated: 02 Aug 2022, 11:20 AM IST
TL;DR.

The one-year swap rate was trading at 6.10%, while the five-year swap rate has fallen more to 6.24%, with the spread dropping to 14 basis points (bps), which is lowest since March 2020.

FILE PHOTO: A man speaks on his mobile phone past a new brand identity for Nifty Indices inside the National Stock Exchange (NSE) building in Mumbai, India, May 28, 2019. REUTERS/Francis Mascarenhas

FILE PHOTO: A man speaks on his mobile phone past a new brand identity for Nifty Indices inside the National Stock Exchange (NSE) building in Mumbai, India, May 28, 2019. REUTERS/Francis Mascarenhas

(Reuters) - The spread between India's one-year and five-year overnight indexed swaps dropped to its lowest level in over 29 months on Tuesday as bets of aggressive rate hikes from the Reserve Bank of India ebbed.

The one-year swap rate was trading at 6.10%, while the five-year swap rate has fallen more to 6.24%, with the spread dropping to 14 basis points (bps), which is lowest since March 2020.

The spread had been above 50 bps at end of June, and had jumped to as high as 160 bps in April in anticipation of a prolonged rate hike cycle.

"The fact that the Federal Reserve may find it tough to raise rates aggressively is having a cascading effect across asset classes," trader with a private bank said.

The RBI monetary policy decision is due on Aug. 5, with views on the quantum of rate increase split between 25 basis points and 50 basis points, according to a Reuters poll of economists.

The RBI has hiked its repo rate by 90 bps since May.

"Markets have already factored in 35 basis points hike by the RBI on Friday, and expectations of not many hikes after this one has led to strong receiving interest in swaps, especially the five-year part," another trader said.

 

First Published: 02 Aug 2022, 11:20 AM IST