OIS edges down on risk aversion; oil fall aids

MUMBAI: Indian overnight indexed swap rates edged lower on Tuesday as risk aversion re-emerged across the region while a decline in global crude oil prices and some easing of liquidity in the banking system also boosted.

At 12:30 p.m., the benchmark five-year swap rate was down 5 basis points (bps) at 7.76 percent while the one-year rate was down 4 bps at 8.03 percent.

"General risk aversion elsewhere plus positioning is leading to cutting of paid positions on any risk-off move," said a senior rates trader with a primary dealership.

"Think the one-year OIS has a base at 8 percent. So don't think it will go below that. There is a lot of technical support there," he added.

The euro looked set to snap a six-day winning streak on Tuesday, coming off nearly one-month highs against the dollar as the greenback was bought back broadly on a flurry of stop-loss buying and short-covering by macro-funds.

Traders said a drop in global crude oil prices also helped. Brent crude was lower on Tuesday, weighed down by lingering concerns over the health of the global economy, the Greek debt crisis and a stronger dollar.

However, heaving pipeline of debt supplies is seen dampening sentiment for debt.

India sold 80 billion rupees of cash management bills on Monday, ahead of 100 billion rupees of treasury bills on Wednesday and 120 billion rupees worth bonds on Friday.

State governments will also sell 52.5 billion rupees worth bonds on Wednesday, taking total debt sale this week to 352.5 billion rupees.

However, some easing of liquidity conditions helped sentiment.

Banks borrowed a net 145.80 billion rupees from the central bank's liquidity adjustment facility, compared to 285.05 billion rupees on Monday, much below 1.05 trillion rupees on Thursday, reflecting some easing in cash conditions.

While finance ministry officials have made repeated statements that New Delhi intends to stick to its fiscal deficit aim of 4.6 percent of GDP in the year that started in April, most private economists expect it to overshoot, which may force it to borrow more to fund the shortfall.