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Informist, Wednesday, Jun. 11, 2025

By Vidhushi RajPurohit

MUMBAI – Overnight indexed swap rates inched up Wednesday towards close of the market session on news that the Reserve Bank of India may announce variable rate reverse repo auctions, dealers said. Earlier in the day, the swap rates were down as the levels seemed attractive to receive fixed rates, dealers said.

The one-year swap rate ended at 5.56%, up from 5.54% Tuesday. The five-year swap rate ended at 5.76%, its highest closing level since Apr. 8 and up from 5.73% Tuesday. The total notional trade volume on the Clearing Corp. of India's derivatives trading platform was INR 849.25 billion, down from INR 969.25 billion Tuesday.

"There is little incentive to receive with low hopes for rate cuts but then the VRRR (variable rate reverse repo) news was an added factor and we saw sharp paying from there," a dealer at a primary dealership said.

A news flash Wednesday said the RBI could consider holding variable rate reverse repo auctions to anchor the money market rates near the repo rate of 5.50%. The news flash came at a time when the market was already ripe with speculation of variable rate reverse repo auction, after the central bank Monday said it was discontinuing its daily variable rate repo auctions starting Wednesday, dealers said.

Traders feared that the VRRR auctions will likely push up the money market rates. On Wednesday, the overnight Mumbai Interbank Offered Rate – the floating leg of the OIS contract – was unchanged from Tuesday at 5.35%, its lowest level since September 2022. Concerns were also there about the systemic liquidity surplus falling sharply after the outflows for advance tax and goods and services tax in the upcoming weeks. On Tuesday, the RBI net absorbed INR 2.62 trillion from the banking system, central bank data showed. Payment for corporate advance taxes is estimated to drain out INR 1.5 trillion to INR 2.00 trillion by next week, dealers said.

The swap rates also climbed after the US Treasury yields rose Wednesday, dealers said. The yield on the 10-year benchmark US Treasury note rose to 4.50% as of 1600 IST, from 4.45% at close of the Indian market Tuesday. Traders also await the US CPI data for May, due 1800 IST Wednesday. The US CPI is expected to rise 0.2% on month in May, as per a poll by Dow Jones. Annually, it is projected to rise 2.4%. The CPI reading is seen crucial ahead of the US Federal Open Market Committee decision on policy rates next week. 

OUTLOOK

On Thursday, swap rates may track the movement of US yields overnight, dealers said. The movement of US yields will be closely tracked after the release of US CPI inflation data at 1800 IST. Longer-tenure swap rates may also track the movement of government bond yields, dealers said.

With domestic rate cuts seen nearly done after the RBI's rate-setting panel delivered a 50 bps cut in the repo rate Friday, traders are now more keenly tracking US yields and data, dealers said. Traders also await the US Federal Open Market Committee statement next week for its outlook on rates, they said.

Traders will also track the movement of the overnight MIBOR for direction on short-term swap rates. The one-year swap rate is seen in a range of 5.52-5.58% Wednesday. The five-year contract is seen at 5.72-5.80%.

End

Edited by Ashish Shirke

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