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Informist, Thursday, Apr. 17, 2025

By Srijita Bose

MUMBAI – Overnight indexed swap rates ended steady Thursday as traders have already priced in another 50 basis points of rate cuts by the Reserve Bank of India's Monetary Policy Committee and are awaiting further cues to trade, dealers said. The one-year swap rate ended at 5.73%, marginally lower than 5.74% Wednesday, while the five-year swap ended at 5.68%, flat compared to Wednesday.

"There is not much juice in swaps since two more cuts are already priced in," a dealer at a private bank said. "But the overall view is positive and more fall can be seen once gilts also fall significantly from here with some macro (economic) trigger or a rate cut."

Trading was also limited as many domestic traders were away to attend the Fixed Income Money Market and Derivatives Association of India's annual conference that started Thursday, dealers said. 

US Treasury yields eased slightly earlier in the day. The yield on the 10-year benchmark US Treasury note fell to 4.31% at 0900 IST from 4.33% at 1700 IST Wednesday. This led to some offshore traders receiving fixed rates on longer-tenure swaps, but did not lead to a significant fall in rates, dealers said. 

Some dealers traded on spreads on the five-year swap over the two-year swap, dealers said. Some paid the five-year swap while receiving the two-year swap to reduce the overall exposure, as global uncertainties are expected to keep rates more volatile. Others paid the two-year swap while receiving the one-year swap or other shorter-tenure contracts, they said. 

"There was spread trading today (Thursday)," a dealer at a primary dealership said. "As rates are not seen falling significantly from here in the very near term, more of these spread trades will become the norm."

OUTLOOK

Money markets are shut Friday for Good Friday. Swaps are not traded on Saturdays. Monday, swaps may take cues from movements in US Treasury yields at open, dealers said. Traders will also look out for US weekly jobs data due later Thursday and the speech by Federal Reserve Governor Michael Barr for cues on rate cuts by the US Federal Open Market Committee, they said. 

Any sharp rise in US yields is expected to lead to paying in Indian swaps, especially in long-term contracts, dealers said. Traders will also keep an eye on updates on the ongoing US-China trade war. 

An increase in expectations of rate cuts by the RBI could lead to a fall in swap rates, they said. Meanwhile, short-term swaps will closely track the overnight Mumbai Interbank Offered Rate, which is expected to remain near the repo rate, and further liquidity boosting measures by the RBI.

With increasing expectations of a deeper-than-expected rate-cutting cycle, some 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 Saji George Titus

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