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Informist, Thursday, May 29, 2025

By Srijita Bose

MUMBAI – Overnight indexed swap rates ended steady Thursday ahead of GDP prints for the US and India, dealers said. With most offshore traders on the sidelines and more than two domestic rate cuts priced in by domestic traders, trade volumes remained muted during the day, they said.

The one-year swap rate ended at 5.57%, against 5.56% Wednesday. The five-year swap rate ended at 5.64%, against 5.63% on Wednesday. The total notional trade volume on the Clearing Corp. of India's derivatives trading platform was INR 151.20 billion, higher than INR 95.70 billion Wednesday.

Traders refrained from placing large and aggressive bets on swaps as rates already reflect two further rate cuts of 25 basis points each for the remainder of 2025 by the Reserve Bank of India's Monetary Policy Committee, with a high chance of a third rate cut, dealers said. Some traders also expect the RBI to come up with more open market operation auctions after the policy meeting, while others expect a cut in the Cash Reserve Ratio.

"Offshore traders are also not coming in now, so today (Thursday) most of the participation was from domestic guys, but that too was muted," a dealer at a primary dealership said. "Tomorrow (Friday), let's see how the GDP print comes, then we could see some volatility in rates."

Some domestic traders paid fixed rates in swaps while buying government bonds on firm rate-cut expectations and comfortable liquidity, dealers said. However, most traders awaited India's GDP growth estimates, which could influence the policy decision of the RBI's rate-setting panel when it meets in June. A reading below 6.50% for the March quarter could cement views of 75 bps in further rate cuts in 2025, they said.

The minutes of the US Federal Open Market Committee's May meeting showed that Fed officials are worried about the "difficult trade-offs" between rising inflation and rising unemployment going ahead. Fed staff also warned about potential recession risks in the world's largest economy. The yield on the 10-year benchmark US Treasury note rose to 4.54% during the day, up from 4.47% at 1700 IST Wednesday.

Offshore traders kept to the sidelines and traders were cautious in placing large bets in the five-year swap ahead of the second estimate for US Jan-Mar GDP. The reading of the Fed's preferred inflation gauge is also scheduled this week.

"Not much is happening in swaps now, the move has already happened and everyone is waiting for further cues," a dealer at a private-sector bank said.

OUTLOOK

Friday, rates are likely to track the overnight movement in US Treasury yields after the release of US Jan-Mar GDP data. The Bureau of Economic Analysis revised its Jan-Mar GDP estimate to show 0.2% on-year contraction, compared with the previously reported on-year fall of 0.3%. This marks a shift from the 2.4% on-year rise in Oct-Dec, and is only slightly better than the 0.3% fall expected in a Bloomberg poll.

Traders will now await the release of India's GDP data for Jan-Mar and FY25 at 1600 IST Friday. According to an Informist poll of 19 economists, India's GDP growth is seen rising to a four-quarter high of 6.8% in Jan-Mar from 6.2% the previous quarter. Traders expect a print of around 6.5% or lower for the March quarter, which would lend weight to the view that the terminal repo rate could fall to as low as 5.25%. However, if GDP growth in Jan-Mar is above 6.50%, traders said further repo rate cuts of more than 50 bps would be unlikely.

Traders will also track the movement of the overnight Mumbai Interbank Offered Rate for direction on short-term swap rates. The one-year swap rate is seen in a range of 5.48-5.70% Friday. The five-year contract is seen at 5.53-5.78%.

End

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

Edited by Rajeev Pai

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