More Stories

Informist, Thursday, Jan. 16, 2025

By Srijita Bose

MUMBAI – Overnight indexed swap rates were down as US Treasury yields plunged, bringing in offshore traders to receive fixed rates. The Reserve Bank of India's announcement late on Wednesday of holding variable rate repo auctions on a daily basis led to a fall in short-term swaps, dealers said.

The one-year swap rate ended at 6.44%, the lowest close since Dec. 13, against 6.53% Wednesday. The five-year swap rate settled at 6.23%, against 6.28% the previous day. 

The yield on the 10-year US Treasury note slid to 4.66% at 1700 IST from 4.78% at the close of Indian market hours on Wednesday. US yields cooled after US core CPI inflation for December eased to 0.2% on month, against the consensus estimate of a 0.3% rise. Cooling inflation increased the chances of a quicker and deeper rate cut cycle by the US Federal Open Market Committee in 2025, dealers said. Bets on more than one rate cut by the FOMC this year resurfaced post the data. 

"I think the OIS market is moderating now after testing highs the past few days," a dealer at a private bank said. "In the morning, offshore flows came in after US yields eased, hence, the gap down at open, but the current level looks good and sustainable, provided that US yields are well-behaved, and no major surprises come in post (US President-elect Donald) Trump comes to office." 

During the day, trade volumes across the short-term contracts rose after the RBI decision to conduct daily variable rate repo operations. Traders also received fixed rates on swaps maturing within a year with the view the daily auctions would help anchor overnight money market rates to the repo rate of 6.50%. Dealers were hopeful this would be the precursor to longer-term liquidity measures.

The RBI also allowed primary dealerships to take part in these auctions, which were seen to increase trading activity and a proactive measure by the central bank, dealers said. The measure is also seen as a positive on the rate-cut front, with hope of a rate cut by the RBI's Monetary Policy Committee in February increasing after the announcement. Several traders considered easing liquidity as paving the way for rate cuts, and said that cutting rates without adding durable liquidity to the system would defeat the purpose of the move.

Later in the day, domestic traders locked in fresh bets after a Bloomberg report said the RBI was looking to take further measures to infuse liquidity into the banking system, including on a durable basis, dealers said. The report Thursday said the central bank may conduct open market gilt buys, long-term dollar-rupee buy/sell swaps, or a cash reserve ratio cut as part of its durable liquidity infusion. Some traders unwound their received positions in the five-year OIS and preferred to add gilts to their portfolios, dealers said.

"The slight rise in the 5-year OIS seems to have come from a specific investor unwinding their positions, but the receiving interest is so much still that the market has consolidated at these levels," a dealer at a primary dealership said. "The Bloomberg report was triggered by a receiving bias, but some offshore guys hedged their gilt positions."

OUTLOOK

On Friday, swap rates will take cues from the movement in US yields after the release of data on retail sales and weekly unemployment claims. The 10-year US Treasury yield was little changed at 2000 IST, despite jobless claims rising and retail sales missing estimates.

Swap rates may fall on Friday on receiving interest from both offshore and onshore traders on a more cemented rate cut view. Traders are also eyeing any announcement on open market purchases of gilts by the RBI, which will infuse durable liquidity in the banking system. Any such announcement will also lead to rates falling sharply, particularly on shorter tenures, dealers said.

The movement in crude oil prices may also lend direction. The swap rate in the one-year segment is seen at 6.39-6.47% and in the five-year segment at 6.18-6.27%.

End

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

Edited by Akul Nishant Akhoury

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000 

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2025. All rights reserved.