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Informist, Friday, Jun. 20, 2025

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended steady as traders trimmed risk ahead of the weekend, dealers said. Swap rates opened lower, tracking a fall in bond yields, they said. 

The one-year swap rate ended at 5.52%, compared to 5.53% Thursday. The five-year swap rate ended at 5.75%, flat compared to the previous session. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 217.20 billion, lower than INR 315.40 billion Thursday.

Swap rates opened lower as traders had paid fixed rates in excess Thursday, dealers said. Swaps were sharply up Thursday after the outcome of the US Federal Open Market Committee meeting indicated the scope for further rate cuts in the US was bleak. The rise in swaps was aided by an intraday rise in crude oil prices, and concerns over the US involving itself in the Iran-Israel conflict.

On Friday, an overnight ease in crude oil prices and a fall in gilt yields led to traders receiving fixed rates, dealers said. Brent crude for August delivery was at $77.03 a barrel, after hitting $79 per barrel overnight, against $77.56 a barrel at 1700 IST Thursday. Traders were tracking US Treasury futures on Thursday, since US markets were shut for Juneteenth day. On Friday, US Treasury yields were lower than the level indicated in futures the previous session, which also brought down swaps, dealers said. The yield on the benchmark 10-year US Treasury note was 4.37% at 1700 IST, the same as 4.37% at 1700 IST Wednesday.

"US yields have fallen now, yesterday (Thursday) the 10-year US Treasury future was 4.44% and now we're at 4.39% so swaps have tracked that," a dealer at a private sector bank said. "Some offshore flows have come through ND-OIS (non-deliverable OIS)." 

Dealers also said the spread between the overnight Mumbai Interbank Offer Rate and the five-year swap rate was lucrative to receive fixed rates but was not appealing to pay at current levels. The overnight MIBOR Friday was 5.30%, same as Thursday. 

However, in the second half of trade, dealers unwound their received fixed rate bets to trim risk before the weekend incase the Iran-Israel conflict escalated further, though some traders expect a ceasefire agreement or deal to be settled between Iran and Israel soon. Additionally, some traders expect that the Organization of the Petroleum Exporting Countries and its allies could announce an increase in oil production, which could compensate for the lack of supply from Iran due to the conflict.

"For the next two weeks, I don't think swaps will see much movement, until Trump takes a call on the Iran strikes," a dealer at a state-owned bank said. "For now, market is used to both the countries striking missiles at each other every day, but if US strikes Iran then that's something that will have to be assessed." 

The White House said US President Donald Trump would take a decision on whether to join Israeli strikes on Iran in two weeks. An Iran-backed militia group threatened to attack American bases in the region if the US joined the Iran-Israel conflict. The two West Asian countries continued to attack each other, eight days into the crisis.

OUTLOOK

Swaps are not traded Saturday. On Monday, swap rates will track developments in the Iran-Israel conflict, dealers said. Swaps may also track the movement in gilt yields.

Traders will also take cues from the minutes of the Reserve Bank of India's Monetary Policy Committee meeting in June, released post market hours Friday. However, traders did not build heavy positions for the release as RBI Governor Sanjay Malhotra had already said what was needed on the rate cut outlook, and traders were not expecting anything different, they said.  

Traders will keenly track technical levels as swaps are seen largely range bound due to a lack of domestic cues, they said. 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 5.45-5.58% Monday. The five-year contract is seen at 5.60-5.80%.

End

US$1 = INR 86.59

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

Edited by Deepshikha Bhardwaj 

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