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Informist, Friday, Jun. 13, 2025

By Srijita Bose

MUMBAI – Overnight indexed swap rates maturing in over one year rose Friday, tracking an increase in Indian government bond yields due to geopolitical tensions in West Asia, dealers said. However, swap rates on contracts maturing within one year were steady.

The one-year swap rate ended at 5.55%, flat against Thursday. The five-year swap rate ended at 5.76%, up from 5.73% on the previous day. The total notional trade volume on the Clearing Corp. of India's derivatives trading platform was INR 336.10 billion, higher than INR 300.10 billion Thursday.

Crude oil prices surged after Israel carried out strikes on nuclear sites in Iran, which led to worries about disruption in oil supplies. The August Brent crude oil contract on the Intercontinental Exchange rose to $76 per barrel during the day from $69 per barrel at 1700 IST, which led swap rates to open sharply higher, dealers said. 

"Swaps rose in early trade because of the Israel-Iran situation," a dealer at a private sector bank said. "But there is a good amount of receiving coming at these levels too, so that capped the rise."

The yield on the 10-year benchmark US Treasury note fell to 4.31% during the day from 4.41% at 1700 IST Thursday, after economic data and a good treasury bonds auction on Thursday. Offshore traders likely received fixed rates due to a fall in US yields, limiting the rise in swap rates, dealers said. Traders now await the outcome of the US Federal Open Market Committee's meeting next week. Though the market expects a status quo on rates, the commentary from Fed officials will be keenly watched.

Offshore traders likely received fixed rates on the five-year swap while selling the five-year benchmark gilt, dealers said. Traders expect the spread on the five-year benchmark gilt yield over the five-year swap rate to widen from current levels as they do not see further rate cuts by the Reserve Bank of India's Monetary Policy Committee in 2025 after the panel changed the policy stance to 'neutral' from 'accommodative' last Friday, dealers said. The spread between the five-year benchmark gilt yield and five-year swap rate is currently over 22 basis points, lower than 36 bps a month ago. 

Traders who had paid fixed rates in earlier sessions on swaps maturing in up to one year also unwound their positions Friday as fears of a variable reverse rate repo auction announcement faded, dealers said. Moreover, comfortable liquidity in the banking system and a steady fixing of the overnight Mumbai Interbank Offered rate -- the floating leg of the OIS contract -- also kept rates in shorter-tenure contracts from rising, they said. 

"Short-term swaps are mostly steady, as some unwinding is happening," a dealer at another private sector bank said. "Plus, there is a good amount of liquidity in the system, and MIBOR is also at similar levels, so we are not seeing much movement there."

OUTLOOK

Swaps are not traded on Saturdays. On Monday, swap rates will track developments in West Asia, dealers said. Swaps may also track the movement of US yields, dealers said. Longer-tenure swaps may also track the movement of gilt yields, dealers said.

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

Traders will also track 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% Monday. The five-year contract is seen at 5.70-5.80%.

End

US$1 = INR 86.08

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

Edited by Saji George Titus

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