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Informist, Wednesday, Jun. 18, 2025

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended steady across tenures in a session of volatile trade. Swap rates were largely flat near the end of market hours due to caution ahead of the US Federal Open Market Committee's meeting outcome at 2330 IST, dealers said. 

The one-year swap rate ended at 5.48%, flat compared to Tuesday. The five-year swap rate ended at 5.68%, lower than 5.69% in the previous session. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 224.05 billion, lower than INR 263.25 billion Tuesday.

At market open, swap rates opened tad lower, tracking an overnight fall in US Treasury yields, dealers said. The yield on the benchmark 10-year US Treasury note was 4.37% at 1700 IST, slightly lower from 4.40% at 0900 IST and 4.42% at 1700 IST Tuesday. The FOMC is widely expected to hold interest rates steady at the meeting, but traders await the economic and rate projections for the rest of 2025. The FOMC is largely expected to cut rates twice by the end of December.

"There was some profit-booking today (Wednesday) because we have seen rates fall the past couple of days," a trader at a primary dealership said. "People are now waiting for the FOMC's dot plot, so if there is a surprise there, we'll see movement tomorrow (Thursday)."

However, swap rates rose immediately after opening, tracking the rise in gilt yields and the sharp fall in the rupee against the dollar, dealers said. The 5-year swap rate rose to the day's high of 5.73%, the key technical level, which, if broken, the swap rate could rise to 5.80%, dealers said. However, the rise was not sustained as the rupee came off lows and 5.73% was a good level to receive fixed rates, dealers said. 

Swap rates reversed early gains on an intraday fall in US Treasury yields, and traders reduced their paid positions before the FOMC decision, they said. Swap rates also tracked the developments in the Iran-Israel conflict and the movement in crude oil prices during the day. 

According to media reports, Iran's Supreme Leader, Ayatollah Ali Khamenei Wednesday threatened the US with "irreparable damage" if it follows through with a military strike against Iran. The development comes after US President Donald Trump issued threats to Iran's leadership through Truth Social, demanding an "unconditional surrender" and warning of potential military action. Trump said that while the US was holding back for now, its patience was running out. Brent crude for August delivery was at $76.73 a barrel at 1700 IST, up from $74.93 a barrel at the same time Tuesday.

Swap rates maturing in under one year also ended steady. However, traders see scope for a further fall in these rates due to geopolitical uncertainty, leading to further steepening of the rate curve. 

"The steepening (of the OIS rate curve) might continue until the geopolitical uncertainty subsides," a dealer at a private sector bank said. "And see you know, if inflation comes in line (with expectations) we see much more steepening there."

OUTLOOK

On Thursday, swap rates will track the movement of US Treasury yields after the FOMC outcome. Traders will also track developments in the Iran-Israel conflict, dealers said. Longer-tenure swaps may also track the movement in gilt yields, dealers said. Traders will keenly track technical levels as swaps are seen largely range-bound due to a lack of domestic cues, they said.

According to reports, the Federal Reserve is expected to maintain its view that monetary policy remains in a good position, but uncertainty persists. Data on weekly jobless claims for the week ended Saturday will also be released Wednesday, as US markets will be shut on Thursday. Swap rates will also track the movement of the rupee against the dollar.

Traders will also track liquidity in the banking system and the overnight Mumbai Interbank Offer Rate for direction on short-term swap rates. The one-year swap rate is seen in a range of 5.40-5.52% Thursday. The five-year contract is seen at 5.60-5.80%.

End

US$1 = INR 86.4775

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

Edited by Saji George Titus

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