More Stories

Informist, Tuesday, May 6, 2025

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates were mixed Tuesday. Swap rates of tenures one year and below fell to due to a fall in the overnight Mumbai Interbank Offer Rate – the floating leg of the OIS contract. Some swap rates ended steady while rates of higher tenures rose due to a paying bias from offshore investors amid rising tensions between India and Pakistan, dealers said. 

The one-year swap rate ended at 5.63%, slightly down from 5.64% on Monday. The five-year swap ended at 5.63%, up from 5.59% Monday. Both the one-year and the five-year swap rates ended at 5.63%. Total notional trade volume on the Clearing Corp. of India's derivatives trading platform was INR 312.90 billion, up from INR 181.85 billion on Monday.

Movement of swap rates was volatile during the day. Traders closely tracked developements on the geopolitical front after India's home ministry asked states to hold mock drills across 244 civil defence districts on Wednesday to check preparedness against potential hostile attacks. Spooked by this, offshore investors and foreign banks unwound their fixed-rate contracts, especially in the two-year and five-year swaps, dealers said. On Monday, swap rates had fallen during the day due to recieving by offshore investors after rates of non-deliverable swaps fell. 

"See, foreign banks and FPIs get spooked quicker with all these announcements, so they're the first ones to react to any such war-like possibility," a dealer at a private sector bank said. 

A rise in US yields also pushed up swap rates, dealers said. The yield on the benchmark 10-year US Treasury note rose to 4.35% from 4.30% at 1700 IST Monday. The benchmark 10-year US Treasury yield rose after US services sector PMI data for April came in stronger than expected. Investors also await the decision of the US Federal Open Market Committee on Wednesday. 

The lower end of the swap rate curve fell due to a fall in the MIBOR to 5.90% from 5.94% on Monday. The RBI had net absorbed INR 1.21 trillion from the banking system on Monday, down from INR 1.38 trillion on Sunday. The figure was lower but still in a comfortable range, as cash parked by banks at the RBI's Standing Deposit Facility was largely unchanged at INR 1.63 trillion from Sunday. 

"Longer-end (OIS rates) is reacting to the (mock) drill, but liquidity is comfortable in the system so short-term is positive (a downward bias)," a dealer at another private sector bank said. 

However, some traders recieved fixed rates, wanting to lock in higher rates, on expectations of at least another 50 basis points of rate cuts in the remainder of 2025 by the Reserve bank of India's Monetary Policy Committee. This offset some of the paying bias from offshore investors. Dealers also traded on spreads between tenures of swaps due to the the mixed movement in rates, dealers said.  

OUTLOOK

On Wednesday, swap rates will be driven by developments on tension between India and Pakistan, dealers said. Traders are on the watch for the nation-wide civil defence mock drill the home ministry has asked to carry out Wednesday. Traders will unwind their received fixed-rate bets if there is a rise in tension between the two countries, dealers said. Caution becuause of border tensions may deter domestic traders from actively trading in swaps, but activity by offshore participants could spur a movement in rates, dealers said. 

Traders will track the movement of the overnight Mumbai Interbank Offer Rate for direction on short-term swap rates. Traders will also take cues from the US Federal Open Market Committee's rate decision at 2330 IST Wednesday. 

While a rate cut is not expected at this meeting, traders will await US Federal Reserve Chair Jerome Powell's comments on US tariff polices, a dealer at another private sector bank said. As of 1700 IST, Fed fund futures priced in a 97% chance of status quo in the federal funds rate, according to the CME FedWatch tool.

The one-year swap rate is seen in a range of 5.55-5.75% on Wednesday. The five-year contract is also seen in the 5.55-5.75% range.

End

Edited by Saji George Titus

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.