(Bloomberg) — India’s smallest real estate lender has made such a big splash in the bond market that it’s helping to save the country’s mortgage payments, an unexpected boon for the slowing economy.
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The lender’s presence played a key role in India’s five-year overnight exchange index, a key benchmark for borrowing, falling six points to 6.25% since the recent US presidential election, exchange traders say. That’s despite yields on 10-year Treasuries, which typically dictate moves in Indian swaps given the dominance of foreign banks in the local market, rising 16 basis points during the period.
The National Bank for Financing Infrastructure and Development, or NaBFID, in recent months has promoted trading in OIS and started selling full return swaps, products to help protect against price volatility, according to its managing director Rajkiran Rai G. It has been seeking to combat the decline in interest rates after the launch of the bond earlier this year. today.
“We entered the OIS market and more recently the TRS market because as a financial institution we have to be careful about price risk,” said Rai. “It’s important for us to create a different and more diverse exposure because even though our loans are for 15 to 25 years, they have one year or six months.”
Swaps allow investors to hedge against bet-rate changes by placing the opposite bets using them as a hedging tool. For example, an owner of fixed income instruments such as government bonds can exchange a fixed rate for variable income.
The recent foreclosure of the state-owned real estate lender, which is due in 2021, has helped push up bond prices at a time when government officials have become increasingly concerned about India’s slowing growth. Still, the slowdown could be a problem for the central bank, which insists its war on inflation is far from over.
Although NaBFID made its debut in the OIS market last year, it started doing TRS transactions in the past three months, said two executives at the banks who were involved in the transaction. The government lender has been accepting fixed interest rates to avoid falling prices, trading down to suppress swaps, they said, asking not to be named to discuss the confidential matter.