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Informist, Friday, Oct. 24, 2025

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates were largely steady, with some tenures ending slightly lower Friday in a choppy trading session. Several traders said the sharp rise in swap rates Thursday was unexpected and too large, and received fixed rate contracts Friday.

 

The one-year swap rate closed at 5.46%, down slightly from 5.47% Thursday. The five-year swap closed at 5.65%, down from 5.67% Thursday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 360.65 billion, against INR 399.55 billion Thursday. The five-year swap rose 6 basis points Thursday while the one-year swap had risen 4 bps.

 

Several traders said the rise in swap rates Thursday was "overdone" and received fixed rate contracts Friday, with some saying current levels were lucrative to receive fixed rates. Traders said that while both onshore and offshore traders had paid fixed rate contracts Thursday, most of it was from offshore traders since several onshore traders were on leave.

 

"There was no (onshore) trader presence to offset the paying from offshore yesterday (Thursday)," a trader at a primary dealership said. "So offshore guys were the only ones and they had their way. If you see, the movement was a lot but in low volumes."

 

Swaps rates opened lower Friday on likely offshore receiving but recovered from the fall later in the day, tracking a rise in gilt yields. The yield on the 10-year benchmark gilt rose to a high of 6.56% during the day on sales from primary dealerships as traders assessed the possibility of higher domestic GDP growth if a trade deal between India and the US were sealed and US tariffs on Indian exports were reduced.

 

Most traders had thought further cuts in the repo rate would come only if GDP growth was hit by the higher tariffs imposed by the US. According to the minutes of the Reserve Bank of India's Monetary Policy Committee's latest meeting on Sept. 29-Oct. 1, RBI Governor Sanjay Malhotra had said domestic economic growth is expected to soften because of the tariffs, though the cut in goods and services tax by the Centre would partially cushion the impact. 

 

A news report of a potential reduction in US tariffs on India to 15-16% spooked traders, as 15% is an unexpectedly low number. However, traders are still largely expecting a rate cut by the Monetary Policy Committee in December, which is why current levels of 5.65-5.70% on the five-year swap are lucrative to receive, dealers said. The caveat is that an India-US trade deal could reduce the scope for a deeper rate-cut cycle, they said.

 

Nearing the end of trade, swaps fell again on the possibility that a trade deal with the US could take longer than expected, after Commerce and Industry Minister Piyush Goyal said India will not sign any deal in a hurry.

 

Several traders, especially offshore traders, preferred receiving fixed rates in the five-year swap instead of receiving fixed rate contracts in the one-year swap or lower tenures. Other traders preferred receiving in the two-month and three-month swap rates on bets of the curve steepening if the Monetary Policy Committee cuts rates in December. 

 

"I can't seem to understand why offshore is going for a flattener," a dealer at a private-sector bank said. "I've spoken to onshore, everyone's going for a steepener, but offshore is going for a flattener and the only possible reason I see is to get out of the short-term receive."

 

OUTLOOK

Swaps are not traded Saturdays. On Monday, they may track the movement of US Treasury yields after the release of US CPI data for September after market hours Friday. The data were slightly lower than estimated, with headline inflation up 3.0% on year, against a Wall Street Journal poll of 3.1%. Core CPI rose 3.0% on year, against an estimate of 3.1%. The print boosted the case for a rate cut by the US Federal Open Market Committee at the end of the month, with Fed fund futures largely pricing in a 25 basis-point cut at the meeting.

 

Traders will also track developments in India-US trade talks. Trading activity is expected to increase as several traders may return to their trading desks by Monday after having been on leave for Diwali, dealers said.

 

There is no immediate data scheduled on the domestic front that is likely to have a significant impact on swap rates, dealers said. Swaps may also track the movement of the rupee against the dollar and of crude oil prices. The one-year swap rate is seen in the range of 5.38-5.52% and the five-year contract at 5.55-5.74%.

 

	At 1700 IST	THURSDAY
1-year OIS	5.46%	5.47%
2-year OIS	5.40%	5.41%
5-year OIS	5.65%	5.67%
2-year MIFOR	5.83%	5.82%
5-year MIFOR	6.24%	6.24%

 

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Rajeev Pai

 

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