India 5-yr swap at 6-wk low on liquidity, bond cut-off

MUMBAI, Nov 20 - Indian five-year swap rate fell to a six-week low on Friday as investors continued to cut their paid positions on view that the regulators will allow cash conditions stay intact until the end of 2009, traders said.

Better demand for domestic bonds, suggested by lower-than-expected cut-off yields at Friday's auction, also helped the far end of the swap curve ease, they said.

At 4 p.m., the benchmark five-year swap rate <INRAMONMI5Y=> was at 6.51/54 percent, a level last tested on Oct. 9, and sharply below Thursday's close of 6.59/63 percent.

The Reserve Bank of India sold 100 billion rupees of bonds on Friday and all the three bonds offered were sold at lower yields than expected. [ID:nMBI005916]

"Recent economic data, a lack of momentum in global equities and better prospects for domestic bonds all supported receiving in longer tenures," said a trader at a state-run bank.

Traders also said some investors were also paying in one-year simultaneously, on view there is little room for the rate to ease.

The one-year swap <INRAMONMI1Y=> was at 4.57/61 percent, barely moved from its previous close of 4.60/64. The spread between the five-year and one-year fell to a five-week low of 193 basis points from near 199 on Thursday.

Two-year U.S. interest rate swaps fell below 1 percent for the first time ever on Friday as an abundance of liquidity in financial markets and expectations policy rates will remain low squashed short-term market rates. [ID:nLK600341]

Total volume in swaps was at 14.25 billion rupees at the central bank's reporting platform with more activity in the five-year tenure.