More Stories

Informist, Monday, Jan. 20, 2025

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended slightly lower as some traders unwound their paid positions to trim any risk before the inauguration of Donald Trump as the next US president later in the day, dealers said.

The one-year swap rate ended at 6.45%, against 6.47% Friday. The five-year swap rate settled at 6.23%, against 6.24% the previous day. 

Markets have been bracing for Trump implementing inflationary policies, including tariff hikes and immigration restrictions, that he had pitched during his election campaign. These policies, along with the expansionary fiscal policy proposed by Trump, threaten to slow down the pace of the rate cuts by the US Federal Open Market Committee, thereby impeding the same in India, dealers said.

Last week, some traders paid fixed rates in the most-liquid nine-month and one-year segments in the run-up to Trump's inauguration. However, on Monday they scaled down their bets against rate cuts to factor in the possibility of Trump not making any big bang announcements immediately after swearing-in, dealers said.  

"People are unwinding right now because there's no clear direction. I don't think these are foreign flows because volumes are also low, but everyone wants to square off before Trump says or does anything," a dealer at a private bank said.

Swap rates opened steady despite a rise in US Treasury yields over the weekend. The rise in US yields was largely ignored by the swap market as the yield on the 10-year US Treasury note had largely stagnated at the 4.60-65% level, dealers said. Swap rates have not been tracking the movement of US yields closely, given that the Reserve Bank of India's Monetary Policy Committee's decisions are not seen tracking the Fed's policy closely. While the Fed has already started lowering interest rates, a rapidly depreciating rupee is seen constraining the RBI's ability to cut rates. 

US markets are shut Monday on account of Martin Luther King Jr. Day, which also led domestic traders to ignore the offshore cues. The yield on the 10-year US Treasury note rose to 4.63% at 0800 IST from 4.60% at the close of Indian market hours Friday, rising around 100 basis points since the US Federal Open Market Committee began cutting rates in September.

The total notional volumes were low as traders were cautious about placing any aggressive bets before Trump's inauguration. Some dealers said there were rumours that Trump would pass 25 orders immediately after taking office, while some said they did not see any immediate policy implementation. The lack of certainty kept swap rates trading in a thin band during the day. 

However, the volumes in the one-year and six-month swap contracts jumped as a combination of improved liquidity conditions and expectations of a rate cut by the RBI next month made short-term swap tenures lucrative for receiving fixed rates, dealers said. On Wednesday, the RBI announced daily variable rate repo tenders until further notice, easing the pressure on banking system liquidity. The systemic liquidity stood at a deficit of INR 1.94 trillion on Sunday. The deficit is expected to widen after outflows for goods and services tax are set to begin this week, which kept the overnight Mumbai Interbank Offer Rate – the floating leg of the OIS contract – at 6.75%, 25 bps above the RBI's repo rate.

However, despite the higher MIBOR rate, the spreads between short-term and long-term tenures were lucrative for traders, dealers said. The two-year contract was only 1 basis point lower than that of the 5-year swap. "You will go for a spread in a tenure which is expected to see high activity. All the short-term papers will see increased activity nearing the policy date (MPC's February meeting), so people are spread trading now," a trader at a primary dealership said. 

OUTLOOK

On Tuesday, swap rates will take cues from the movement in US yields after the inauguration of Donald Trump as the next US president. Any comments by Trump, or immediate implementation of his orders, may lend cues to swap rates.

The movement in crude oil prices, and that of the rupee against the dollar may also lend direction. The swap rate in the one-year segment is seen at 6.35-6.52% and in the five-year segment at 6.18-6.30%.

End

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

Edited by Saji George Titus

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.