OIS flat on global risk aversion; G7 meet eyed : Rajesh Sharma Money Matters Financial Services Limi
Overnight indexed swap rates ended flat amid global risk aversion, as traders refrained from building big positions, waiting for the outcome of the conference call of the finance ministers of the Group of Seven
countries on the Euro zone debt crisis. The one-year OIS and the five-year OIS today ended flat at 7.60-7.66% and 7.24-7.30%, respectively. The euro fell sharply, which triggered some receiving and bonds also gained slightly back here on that. Globally, sentiment turned risk averse amid concern over Spain's banking sector following its Budget Minister Cristobal Montoro's comments today. Media reports said Montoro highlighted the funding problems being faced by Spain, and said it was "technically" impossible to bail the country out. A further contraction in Spain's services Purchasing Managers' Index, also weighed on sentiment. Earlier today, swaps rose taking cues from the improvement in global risk appetite. Equities and currencies such as the euro had risen on Monday prompting traders to pay fixed rates back here. The sharp fall in swap rates over the past few days also led to some received position-cutting during the day. However, intraday, sentiment turned cautious ahead of the conference of Group of Seven nations' finance ministers to discuss the Eurozone debt crisis. Dealers said the one-year OIS rate may witness some more receiving in the run-up to the Reserve Bank of India's policy meet on Jun 18, due to expectations of a rate cut. In the afternoon today in the run up with risk hovering globally the rates inched up reversing the string of recent declines which had pushed the rates down by 40-50bps. The absence of lack of OMO for the second consecutive week also helped paying in the near end OIS.
Overnight indexed swaps are likely to be driven by global cues. Globally, risk appetite may be impacted following the outcome of the conference call of finance ministers of the G7 countries who are to discuss measures to combat the euro zone debt crisis. Any failure to reach a consensus at the meeting may worsen the outlook on the region's economy and spur risk aversion, which would pull down swap rates.
However, a sharp fall in swap rates is unlikely as some traders may unwind received positions during the day. Rajesh Sharma CMD Money Matters Financial Services Ltd expects the one-year OIS to be in the range 7.55-7.75% range, while the five-year swap may move in the range 7.20-7.35% band.
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