An offshore non-deliverable interest rate swap market for India has emerged in recent weeks, according to derivatives traders. "This is [a] natural market development," said Bryan Yap, managing director and Asian head of global emerging markets at Deutsche Bank, adding that while international houses have been executing one-off transactions for a few months, a two-way market is only appearing now. The development stems from the growing interest in the Indian market, "We're seeing greater momentum of clients moving capital and seeking more diversification in the emerging markets," Yap added.
Offshore players have been diving into the budding interest rate swap market to take advantage of swings in pricing. "When reactions occur, this is a market that tends to overshoot," said one fixed income head in Mumbai. Dealers have noted that while domestic interest rates should remain steady, further potential rises in the U.S. have brought about two-way action and potential discrepancies in pricing.
In the region similar offshore markets have developed, such as in Korea, although the trend is to move markets onshore (DW, 6/28). Dealers noted that the Reserve Bank of India has expressed concern about the recent offshore developments because it doesn't have a way to gauge market activity. The establishment of a bond futures market, which is currently being discussed, could bring more interest onshore because swaps would be used as a hedging instrument. Alpana Killawala, spokeswoman at the RBI in Mumbai, did not respond to messages.
