More Stories

Informist, Tuesday, Apr. 8, 2025

By Srijita Bose

MUMBAI – Most shorter tenure overnight indexed swap rates ended lower due to expectations of a rate cut by the Reserve Bank of India's Monetary Policy Committee on Wednesday, dealers said. The five-year swap rate ended off highs as traders unwound their earlier paid bets before the RBI details its policy decision. The one-year swap rate ended at 5.88%, lower than 5.90% on Monday. Meanwhile, the five-year swap ended at 5.77%, flat compared to Monday.

Some offshore traders paid fixed rates on two- and five-year swaps in early trade as US Treasury yields rose, dealers said. The yield on the 10-year US Treasury note rose to nearly 4.19% intraday from 4.00% at 1700 IST Monday as traders sold bonds on fears of a full-fledged trade war between the US and China. However, US President Donald Trump's advisers said there was some room for countries to negotiate and lower the reciprocal tariffs, which allayed some fears of domestic rate traders.

"Because we are at the cusp of a rate cut, the sell-off in swaps was not so much," a dealer at a private bank said. "There are two big events due tomorrow (Wednesday), both tarriffs and MPC outcome... so people are treading with caution."

Traders are also likely to have entered into reverse bond-swaps to hedge their bets ahead of the RBI Monetary Policy Committee's decision, they said. Onshore traders also unwound earlier paid positions before the panel's rate decision, they said. 

Traders widely expect the RBI's rate-setting panel to cut the repo rate by 25 basis points and opt for a softer stance to indicate furter cuts during the year. Swap rates are pricing in nearly 75 bps of rate cuts by the RBI by the end of 2025 on expectations that growth will slow down due to the tariffs, dealers said. Nomura on Tuesday cut its GDP growth forecast for India in 2025 by 10 basis points to 5.9% and said it continues to believe India is "the least exposed" to shocks from the US tariffs.

"There is a case forming on whether there will be a stance change this time or not because of global sentiments," a dealer at another private bank said. "Market is divided right now on that and we might see some 4-5 bps upside move (on the five-year swap rate) if they (RBI's panel) don't opt for a stance change...so people are moving to short-term (OIS) to reduce the exposure." 

Investors fear that US President Donald Trump's imposition of reciprocal tariffs, which are set to come into effect on Wednesday, could lead to higher inflation. This could cause central banks across the globe to refrain from cutting rates, which could also deter the RBI from a stance change, dealers said.

Trade volumes on shorter tenure contracts rose as traders chose OIS maturing in up to one year to trade instead of longer tenure contracts, dealers said. The price value of a move of one basis point in a shorter-tenure contract is lower than that on a longer-tenure contract, which traders used to reduce the exposure before Wednesday's events, they said. Notional trade volumes on shorter-tenure contracts maturing in up to one year totalled INR 218.20 billion, whereas the volume on contracts of two years and above was at INR 93.35 billion, according to ASTROID platform of the Clearing Corp. of India. 

OUTLOOK

On Wednesday, swap rates may take cues from the movement in US Treasury yields at open, dealers said. However, swaps are expected to remain steady before the policy decision by the RBI's rate-setting panel, they said. Traders widely expect the panel to cut the repo rate by 25 bps and change the stance to 'accomodative' from 'neutral'.

The five-year swap rate may fall to near 5.70% if the RBI's rate-setting panel decides to soften the policy stance and may move to above 6.00% if they maintain status quo on both rates and stance, dealers said. 

If China retaliates and indicates further escalation of the trade war with the US, US yields are expected to move up further and lead to paying in Indian swaps, dealers said. However, some of the paying interest may be offset should the RBI's Monetary Policy Committee choose to cut the repo rate on Wednesday, they said. 

Short-term swaps will also closely track the movement in the overnight Mumbai Interbank Offered Rate, with some traders expecting further liquidity measures from the RBI, dealers said. The one-year swap rate is seen at 5.80-6.05% and the five-year rate at 5.68-6.00%.

End

Edited by Avishek Dutta

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.