India IRS Review
Tad up on profit taking; rise capped before MPC minutes
This story was originally published at 20:28 IST on 23 April 2025
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By Aaryan Khanna and Cassandra Carvalho
NEW DELHI/MUMBAI – Overnight indexed swap rates ended slightly higher Wednesday as traders unwound their received fixed-rate positions at a profit, dealers said. The rise was capped, and the five-year swap rate ended off highs, as traders expected the minutes of the Monetary Policy Committee's April meeting, released after market hours, to show that members of the Reserve Bank of India's rate-setting panel favoured further rate cuts.
The bulk of the unwinding was in benchmark one- and five-year swap contracts, boosting volumes. Total notional trade volumes on the Clearing Corp. of India's derivatives trading platform rose to INR 330.50 billion Wednesday, from INR 297.40 billion the previous day. The one-year swap rate ended at 5.72%, up from 5.70% Tuesday, and the five-year swap ended at 5.66%, against 5.64% the previous day.
Swap rates have already priced in at least two rate cuts by the RBI's Monetary Policy Committee in 2025, and traders took the opportunity to book profits as swap rates fell sharply Monday without any fresh triggers. The benchmark rates are still down for the week. Dealers have been unwinding their received fixed rate bets over the last two days. The one-year swap rate had fallen as much as 37 basis points for the month as of Monday, before inching up over the past two days.
"Even after the rise over the last two days, the swap rates are comfortably pricing in two more rate cuts for a total of 50 bps in 2025," a dealer at a private bank said. "The market is just a bit jittery because there has not been a positive cue, and then offshore guys were paying pretty aggressively in the first half."
The five-year OIS rate had fallen early, tracking an overnight fall in US Treasury yields. US President Donald Trump denied any intention to fire US Federal Reserve Chair Jerome Powell. US yields fell after the news as confidence in the US macroeconomic situation improved. The yield on the 10-year US Treasury note was at 4.31% at 1700 IST, down from 4.40% at the Indian market closing Tuesday.
The five-year OIS contract was the most traded Wednesday, with its notional trade volumes climbing to the highest since the monetary policy outcome on Apr. 9. It also traded in a wide range of 5.60-5.69% during the day.
The swap rate reversed the early rise in the first half itself, likely due to offshore traders unwinding their received fixed rate bets. Traders also said a large corporate house, which had built up received positions in swap rates since the policy outcome, was aggressively cutting its positions betting on a further fall in swaps, dealers said.
"Actually today, both in government securities and OIS, the player is the same," a trader at a primary dealership said. "It is only a large corporate that is taking profit".
After the RBI's rate-setting panel adopted an "accommodative" stance in the April policy review, traders expected the members' outlook in the minutes to show concern about India's growth while expressing confidence about CPI inflation remaining tethered. Swap rates across tenures reflect a 25-basis-point rate cut in both June and August, and any uncertainty over the latter may lead to paying interest in swap rates maturing in six months and above, dealers said. The minutes of the Monetary Policy Committee's April meeting were released at 1700 IST.
OUTLOOK
On Thursday, swap rates may fall after the minutes of the MPC's April meeting were seen to affirm traders' views that further repo rate cuts were coming in the June and August monetary policy reviews. The fall may be limited as further rate cuts are already priced in, dealers said.
The overnight movement in US Treasury yields may also lend direction to swap rates. The impact of the offshore trigger may be muted as traders have a high conviction that domestic interest rates are going to fall further, particularly after the minutes, dealers said.
With no major data releases scheduled, traders will closely track the movement of the overnight Mumbai Interbank Offered Rate for direction on short-term swap rates. Swap rates maturing in three years and above may be sensitive to developments on the impact of the ongoing US-China trade war.
The one-year swap rate is seen in a range of 5.55-5.75%. The five-year contract is seen within 5.63-5.82%.
At 1700 IST | TUESDAY | |
1-year OIS | 5.72% | 5.70% |
2-year OIS | 5.55% | 5.53% |
5-year OIS | 5.66% | 5.64% |
2-year MIFOR | 5.92-6.04% | 5.87-5.99% |
5-year MIFOR | 6.12-6.24% | 6.09-6.21% |
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Nishant Maher
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