More Stories

Informist, Friday, Feb. 14, 2025

By Srijita Bose

MUMBAI – Overnight indexed swap rates ended lower tracking a fall in US Treasury yields, dealers said. Traders' expectations of another 25-basis-point cut in repo rate by the Reserve Bank of India's Monetary Policy Committe at its policy review meeting in April also eased OIS rates. 

The one-year swap rate ended at 6.30%, against 6.33% Thursday. The five-year swap rate settled at 6.09%, against 6.14% in the previous session.

The yield on the 10-year US Treasury note fell to 4.54% from 4.61% at 1700 IST on Thursday after the release of US January Producer Price Index and jobless claims data for the week ended Saturday. Producer prices rose 0.4% on month in January, against the consensus estimate of 0.3%. However, US jobless claims fell by 7,000 to 213,000 in the week ended Saturday, against the consensus estimate of 215,000.

Meanwhile, the fear of reciprocal tariffs by the US administration hung over the market after President Donald Trump posted on social media that he would impose them soon. The impact of these tariffs may hurt growth as well as push up domestic inflation, dealers said. However, the implementation of reciprocal tariffs is expected to be delayed at least until Apr. 1. Both onshore and offshore traders likely received fixed rates on the five-year OIS as US yields fell, dealers said.

"Nobody is sure what Trump is going to do finally, but we have to trade anyway," a dealer at a private bank said. "The impact of tariffs is also somewhat priced in and when US yields are going down people will jump at the opportunity...and that's what happened."

Traders also received fixed rates to fully price in another rate cut in April, after the MPC lowered the repo rate for the first time in nearly five years on Feb. 7 to 6.25%. After the RBI conducted a 49-day variable rate repo auction on Friday, in addition to the 56-day auction conducted last week, traders were of the view the central bank was paving the path for further monetary policy easing. Both the long-term variable rate repos will reverse on Apr. 4, three days before the next Monetary Policy Committee meeting starts.

Continued pressure on banking system liquidity, however, kept rates from on shorter tenure contracts maturing within one year, dealers said. On Thursday, the net liquidity injected by the RBI--a proxy for the systemic liquidity deficit--rose to INR 2.42 trillion from INR 2.07 trillion on Wednesday. Dollar sales worth conducted by RBI in the spot market on Tuesday worth around $8 billion to $9 billion on Tuesday likely resulted in the liquidity drain on Thursday as the operations are settled on a 'T+2' basis. The overnight Mumbai Interbank Offer Rate – the floating leg of the OIS contract – also rose to 6.45%, well above the RBI's repo rate of 6.25%.

Traders are awaiting any additional measures by the RBI to ease the liquidity deficit in the banking system. Traders are also betting on the RBI doubling the size of its scheduled open market operation auction of INR 200 billion next week, dealers said. They are also optimistic about future OMO auctions by the RBI as its persistent dollar sales to keep the rupee from depreciating sharply against the dollar continued to drain rupee liquidity, dealers said.

"People have taken adverse positions on the five-year (OIS), so now that US yields are down receiving happened...rate cut expectations also led to the fall (in swap rates)," a dealer at another private bank said. "But for short-term (swaps) to fall, there are so many things that need to change – liquidity, fall in MIBOR needs to happen."

OUTLOOK

Swap rates are not traded on Saturday. On Monday, OIS rates may take cues from the movement of US Treasury yields. Market participants will closely assess any statements by US President Donald Trump on tariffs and their potential impact on global trade, dealers said. 

Traders await any additional measures by the RBI to ease the liquidity deficit in the banking system. The liqudity deficit in the banking system is expected to widen further due to continued dollar sales by the RBI in the foreign exchange market as it attempts to protect the rupee. Short-term swaps will take cues from the movement in the overnight MIBOR rate, which has been set well above the repo rate of 6.25% since the rate cut last week. 

Crude oil prices could also be a trigger if they move significantly, dealers said. The one-year swap rate is seen at 6.24-6.36% and the five-year rate is seen at 6.02-6.18%.

End

US$1 = INR 86.82

Edited by Deepshikha Bhardwaj

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.