>INTEREST RATE STRATEGY (DBS)

IN: Excess Liquidity

HIGHLIGHTS

• While liquidity in the interbank market continues to put downward pressure on o/n interbank rates, Overnight Index Swap rates have risen sharply on rate hike fears

• We think adjustments in the OIS market have run their course and see opportunities to receive fixed in short and intermediate maturities

• There is adequate compensation for the risk of rising o/n rates for anyone who agrees that credit tightening measures by the RBI are not imminent

• Still, the RBI has to be vigilant on loan growth and inflation so rate hikes are possible in 2010 but this risk is already reflected in the market. We think o/n rates will not rise as fast and/or as much as feared

• We recommend investors position for overnight rates to average much less in the coming quarters than what is implied by the OIS curve by receiving fixed short-term and medium-term OIS

To see full report: INTEREST RATE STRATEGY