Interest rates have remained elevated globally as many countries prioritize inflation management. However, they now stand on the verge of an easing cycle.
The US Federal Reserve is almost certainly expected to cut rates at its meeting next week.
«The INR swaps rally more in policy a rate cutting cycle and outperform versus bonds as we have seen historically,» Chandresh Jain, Asia rate and FX strategist, global markets at BNP Paribas told Reuters on Thursday.
«Additionally, the market already has long bond positions, so bonds will underperform in rallies now,» he added.
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India's five-year OIS rate stands at around 5.98%, while the 10-year benchmark 7.10% 2034 bond yield is at 6.82%, a spread of over 80 basis points.
The five-year OIS rate has eased over 40 bps since the start of this quarter, while the 10-year bond yield has declined by 18 bps in the same period.
Jain anticipates that bond yields and swap rates will