India swap review by Rajesh Sharma, Money Matters Financial Services Limited
Overnight Indexed swaps down on global cues, weak Jan-Mar GDP view
Overnight indexed swaps ended down on Wednesday led by risk aversion in global financial markets and expectation of a weak Jan-Mar Gross domestic product data reading for India. OIS was largely driven by global risk review and intraday saw some paying due to recovery in euro. The one-year OIS ended at 7.91-7.97% as against 7.93-7.99% at previous close, and the five-year swap settled at 7.41-7.47% as against 7.43-7.49% Tuesday. Worries over the banking and fiscal health of Spain spurred risk aversion and the outlook worsened after an index of executive and consumer sentiment in the euro area fell to 90.6 from a revised 92.9 in April. The decline in global risk appetite was evident as US bond yields fell sharply. The 10-year benchmark US treasury note was at 1.68% yield as against 1.72% on Tuesday.
In the local market, view of a weak Jan-Mar gross domestic product growth data, scheduled for release Thursday, also spurred receiving interest. Global risk aversion and a sell-off in global commodity prices, with Brent below $106 per dollar also aided receiving. The weak GDP data might encourage the Reserve Bank of India to cut rates aggressively in coming months. CMD Rajesh Sharma Money Matters Financial services ltd expects India's Jan-Mar GDP growth at 6%, sharply lower than 9.1% a year ago. Earlier in the session, the five-year swap was moving with an upward bias tracking the rise in domestic gilt yields as the Reserve Bank of India did not announce bond purchase auction on Tuesday. The central bank typically announces bond purchases on Monday or Tuesday. However, gilt yields declined from their intraday highs, which in turn pulled the long-end swap rates also down.
Overnight indexed swaps are likely to move with a downward bias on Thursday in early hours of trading due to expectation of weak Jan-Mar GDP data reading. Some market participants expect the GDP growth to be below 6%, which could make a strong case for reduction in repo rate by the Reserve Bank of India. Globally, concerns over the Euro zone debt crisis are likely to keep investors away from risky assets. Intraday, swap rates will be steered by the GDP data and comments by senior government officials. The one-year OIS is seen in the 7.85-8.05% band, while the five-year swap may move in the range of 7.35-7.55%.
Tags: Rajesh Sharma Money Matte , Money Matters Financial S
This work is licensed under a Creative Commons Attribution 3.0 License.