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Informist, Wednesday, Apr. 16, 2025

By Srijita Bose

MUMBAI – Most overnight indexed swap rates ended steady Wednesday as traders have already priced in another 50 basis point of rate cuts by the Reserve Bank of India's Monetary Policy Committee and are awaiting further cues to trade, dealers said. The five-year swap, however, fell as US Treasury yields eased. The one-year swap rate ended at 5.74%, marginally lower than 5.75% Tuesday. The five-year swap ended at 5.68%, down from 5.71% Tuesday.

"Swaps have already priced in two rate cuts and though there are expectation for a deeper cycle than that, there needs to be more clarity and triggers to see a further fall from these levels...only in the two-year, there is still some more space for a fall," a dealer at a mutual fund said. "Foreign banks received so there was some fall in the long-end but most mutual funds and private banks were paying at these levels since they look good."

The yield on the 10-year benchmark US Treasury note fell to 4.30% in the day from 4.40% at 1700 IST Tuesday. This led offshore traders to receive fixed bets, dealers said. Companies also likely received fixed rates against buys in government bonds during the day, they said. 

Traders also paid fixed rates for five-year swaps while receiving in the two-year swaps to reduce the overall exposure as global uncertainties are expected to keep rates more volatile on longer-tenure contracts, dealers said. "No one is doing a naked trade now, most of it is playing on spreads, or just in general reducing some of the exposure by going to shorter tenure swaps," a dealer at a private sector bank said.

Meanwhile, among shorter-tenure contracts maturing within a year, notional trading volumes on the three-month paper was the highest at INR 28 billion. Traders received fixed rates on the contract on cemented view of a 25 bps rate cut in June, dealers said.  

OUTLOOK

Thursday, as usual, swaps may take cues from movements in US Treasury yields at open, dealers said. An increase in expectations of further rate cuts could lead to a fall in swap rates, they said.

Traders will also keep an eye on any updates on the ongoing US-China trade war. The US has now levied 245% tariffs on imports from China.

Any sharp rise in US yields is expected to lead to paying in Indian swaps, especially in long-term contracts, dealers said. Meanwhile, short-term swaps will closely track the overnight Mumbai Interbank Offered Rate, which is expected to remain near the repo rate, and any further liquidity boosting measures by the RBI.

With increasing expectations of a deeper-than-expected rate-cutting cycle, traders expect the yield curve to become upward-sloping as global uncertainties may keep long-term swaps volatile. The one-year swap rate is seen in the range of 5.65-5.80% and the five-year at 5.63-5.82%.

End

Edited by Ashish Shirke

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