More Stories

Informist, Thursday, Apr. 24, 2025

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates ended off highs Thursday as traders unwound their paid fixed-rate bets in the latter part of the day's trade, dealers said. Swap rates had risen earlier on profit taking by domestic and offshore traders, and on concerns about rising geopolitical tensions between India and Pakistan.

"Swaps were trending higher for the third day, but then there was a flow that wiped out the momentum completely," said a dealer at a primary dealership. "Honestly, I have no idea who it was, but looking at the price action, it was likely linked to the movement in G-sec."

Government bond yields reversed an early rise to end slightly lower. Traders said this was probably on hopes of the Reserve Bank of India announcing further measures to infuse liquidity into the banking system, with a similar reaction in swap rates as gilt yields fell, dealers said. The move was led by institutional investors, they said.

The one-year swap rate ended at 5.71%, against 5.72% Wednesday, after rising to 5.74%. The five-year swap ended at 5.66%, flat from the previous day and falling from 5.72%. Total notional trade volumes on the Clearing Corp. of India's derivatives trading platform were INR 332.80 billion Thursday, hardly changed from INR 330.50 billion the previous day.

Offshore traders and primary dealers were unwinding their received fixed-rate bets earlier on the view that a further fall in rates in April was unlikely, which drove swap rates higher. With the strategic repositioning expected to continue till Friday, some traders paid swap rates, which they quickly unwound later in the day as the momentum shifted.

The impact on short-term swaps was limited by the entrenched view that the RBI's Monetary Policy Committee would cut the repo rate by 25 basis points at each of the June and August policy reviews, to bring it to 5.50%. Some traders expect a deeper rate-cut cycle but have avoided aggressive bets due to the geopolitical uncertainty on the local and global fronts.

In a rare occurrence, the two-year swap rate was the most traded contract Thursday, with deals settled in a wide range of 5.53-5.59%. The swap rates ended at 5.54%, against 5.55% Thursday. Dealers said there was two-way trade across the one-year, two-year, and five-year OIS rates due to the volatility, with traders punting intraday on the most-liquid contracts as the market seemed unanimous on further rate cuts. Trade volumes were lacklustre and lower than usual across other tenures on the swap curve.

Traders had also paid fixed rates earlier in the day, wary of an escalation between India and Pakistan to something more than diplomatic skirmishes after a terrorist attack in Jammu and Kashmir's Pahalgam earlier this week. However, the paying pressure subsided later in the day as traders saw Prime Minister Narendra Modi's remarks, which did not name the neighbouring country as the offender, calming tensions. Pakistan's administration, during market hours, said it would expel India's diplomats, cancel visas, and withdraw from bilateral treaties in a tit-for-tat response to the measures India announced Wednesday.

Separately, traders said there was no significant impact of the minutes of the April meeting of the rate-setting panel, released at 1700 IST Wednesday, on swap rates. The near-term view on rate cuts remains as the six members of the panel gave their views on growth and inflation while justifying their unanimous vote for a 25-bps repo rate cut and an 'accommodative' stance, dealers said.

The minutes showed that all six members are worried about domestic growth and the risks from the global uncertainty on tariffs. Several expressed confidence that consumer inflation would remain anchored to the RBI's 4% target. RBI Executive Director Rajeev Ranjan also said the committee needs to continue to accord higher weight to growth amid the benign inflation outlook.

"There is no change in anybody's view after the minutes, there was just nothing new there either to confirm or disprove the market's expectation that 50 bps more of rate cuts are coming," a dealer at a foreign bank said. "None of the members committed to a pre-determined path of rate cuts, but raised enough concerns on growth, so as long as data plays along--which the market has a high conviction of--50 bps of further rate cuts are inevitable."
 

OUTLOOK

On Friday, swap rates may open steady on a lack of fresh interest rate cues. Traders continue to track the evolving situation between India and Pakistan in the wake of the terrorist attack earlier this week in Jammu and Kashmir, dealers said. Any escalation may lead to a rise in swap rates by up to 5 basis points, they said.

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 release of the minutes of the Monetary Policy Committee's meeting earlier this month, 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 continuing 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%.

End

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

Edited by Rajeev Pai

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 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2025. All rights reserved.