More Stories

Informist, Monday, Mar. 3, 2025

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended steady due to lack of fresh cues on interest rates, dealers said. US Treasury yields were little changed from Friday, and lack of domestic cues kept volumes muted and limited the rate movement.

The one-year swap rate ended at 6.26%, flat from Friday. The five-year swap ended at 6.02%, against 6.01% Friday. 

The yield on the benchmark 10-year US Treasury note was little changed at 4.24% at Monday's Indian market open, from 4.25% at Friday's Indian market close. The US core personal consumption expenditures price index rose 0.3% on month in January, data released post market hours Friday showed. The print was in line with consensus estimates, and indicated that inflation in the world's largest economy was not heating up, dealers said.

Traders now await the US February employment report, due Friday, for cues on interest rates in the US, and subsequently in India. The market has already priced in an April rate cut, but uncertainty abounds on whether the Reserve Bank of India's Monetary Policy Committee will cut rates a third time in 2025.

"FPI flows are there in 5-year (swap rate) but rate cut expectations are where they are; 5-year wont fall below 6% until that changes," a dealer at a private bank said. "And since gilt yields aren't falling, even OIS will be anchored here." The 10-year benchmark gilt yield ended at 6.74% Monday, against 6.73% Friday.

Moreover, India's GDP data released at 1600 IST on Friday was on expected lines and and did not change traders' rate cut views. India's GDP grew 6.2% in the December quarter from 5.6% in the September quarter. The lack of any other cues until India's CPI inflation data comes out on Mar. 12 would likely see swap rates tracking US and domestic bond yields this week, dealers said.

Notional volumes in the one-month swap rate continued to rise to near-lifetime highs, as seen Friday, due to its maturity in early April. A one-month swap contract entered on Monday will mature on Apr. 4. However, the rate moved in a range of 2 basis points Monday, as opposed to a 9 bps movement on Friday. Traders preferred paying fixed rates in this tenure due to the advantage of a few bank holidays within the contract's maturity, maximising their returns. Expectations of overnight rates soaring near the end of 2024-25 (Apr-Mar) due to tax outflows added to the rush to hedge interest rate risk, dealers said.

"The one-month volumes are because of Last-Day-First-Day. If you pay on (Feb.) 28 you're getting the maturity after a few extra days," a dealer at another private bank said. "Those who wanted to pay have already done it, the few who are left are doing it today (Monday)."

The 3-year swap rate closed below the 6.00% level for the second consecutive day, ending lower than the 5-year rate, as traders utilised the arbitrage between the swap rate and 3-year dollar/rupee forward contract after the RBI Friday held a $10 billion dollar/rupee buy/sell swap, dealers said. The central bank set a cut-off premium of 655.10 paise at the auction and the inflows from the same are scheduled for Tuesday.

OUTLOOK

On Tuesday, swap rates may take cues from the overnight movement in US Treasury yields ahead of the scheduled implementation of US President Donald Trump's tariffs, dealers said.

The Trump administration is set to implement tariffs on Canada and Mexico on Tuesday, but the rate could be revised from the proposed 25%, US Commerce Secretary Howard Lutnick said Sunday. However, Lutnick confirmed that the 10% additional tariff on imports from China would be enforced. A possible global trade war following the tariffs could fuel a rise in inflation, which could cause central banks across the globe to refrain from cutting rates.

Swap rates may also track the movement of bond yields during the day. Short-term swaps will take cues from overnight borrowing rates, which have been well above the repo rate of 6.25% since the rate cut on Feb. 7. The settlement of the three-year dollar/rupee buy/sell swap on Tuesday may also lend direction to the three-year swap rate.

Crude oil prices could also be a trigger for swaps if they move significantly, dealers said. A sharp movement of the rupee against the dollar could also give cues to swaps. The one-year swap rate is seen at 6.18-6.30% and the five-year rate is seen at 5.95-6.06%.

End

US$1 = INR 87.37

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

Edited by Tanima Banerjee

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.