Mumbai: The swap rates eased across tenures on Friday, following the falling bond yields, which reflected hopes of an interest rate cut in coming weeks.
Yield on the benchmark 10-year bonds fell 35 basis points (bps) from an eight-week high of 6.49%, after the Reserve Bank of India (RBI) governor said on Friday the bank will minimize the impact of the government’s borrowing program on the market.
The governor’s comments indicate lesser supplies in the fiscal year ending March than it had been expecting, two foreign bank dealers and a private bank trader said.
“Swaps took cues from the bond yields, ” one foreign bank dealer said.
The benchmark 5-year swaps closed at 4.80/4.86% from its previous close of 4.90/4.96%. Swaps of 1-year tenure fell to 3.87/3.93% from Thursday’s close of 3.96/4.03%.
“Five-year swaps can fall as low as 4.60% any time now,” the dealer said.
Since mid-October, the apex bank has cut its key short-term lending rate by 350 bps and the 5-year swap rate has fallen more than 200 bps so far since then.
At close, volumes were at Rs27.50 billion on the RBI’s electronic platform.