1-year OIS hits 2-month high; bond yields gain

Near-end rate swaps edged up to a two-month high on Tuesday on continued worries that cash conditions will tighten considerably, although bond prices rose for a second session, recovering from a slump after the central bank kept interest rates unchanged last week.

Swap rates are expected to remain elevated as liquidity is set to tighten in the coming weeks, given credit demand picks up and currency in circulation rises ahead of the festival season, which include the Diwali holidays in mid-November.

One-year OIS rate rose 1 basis point to 7.76% after rising to 7.78% earlier in the session. The benchmark 5-year OIS rate rose 1 basis point to 7.1%, after rising to up to 7.115%, its highest in over a month. Liquidity will remain front and centre this week, especially as the cash tightness has been aggravated as the government keeps spending on a leash.

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