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Informist, Monday, Jun. 23, 2025

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended steady Monday after rising earlier in the day as crude oil prices fell from their intraday highs. Swap rates closely tracked the movement of the crude oil prices, which were up at market open but fell slightly in the second half of trading, dealers said.    

The one-year swap rate ended at 5.53%, compared to 5.52% Friday. The five-year swap rate ended at 5.76%, compared with 5.75% on the previous session. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 281.05 billion, up from INR 217.20 billion Friday.

Swap rates opened higher, tracking a rise in crude oil prices after the US struck three key nuclear facilities in Iran on Sunday. In Operation Midnight Hammer, the US "obliterated" three nuclear facilities, US President Donald Trump said. Last week, the White House had said that the US president would decide on whether to join Israeli strikes on Iran in two weeks, which had eased tensions.

After the strikes, Iran pledged to retaliate. The Iranian Parliament unanimously voted to close the Strait of Hormuz, a key passage for the transport of oil and fuel. At 0900 IST, Brent crude for August delivery was at $78.14 a barrel after hitting $81.39 per barrel overnight, against $77.03 a barrel at 1700 IST Friday. The rupee depreciated sharply following the rise in crude, ending at a three-month closing low of 86.7500 per dollar.

However, swap rates cooled later in the day since Brent crude prices did not sustain above the $80-per-barrel mark. "If crude is not sustaining, then why should we react (to the escalation in conflict)?" a dealer at a private sector bank said. "Market is also not reacting because we've already repriced (risen) so much after the MPC (Monetary Policy Committee)." 

The 5-year swap rate has risen 8 basis points since the Reserve Bank of India's rate-setting panel reverted its policy stance to 'neutral' from 'accommodative' on Jun. 6. Traders said the minutes of the MPC's meeting in June were along the expected lines and did not offer any significant takeaways. The minutes were released post-market hours on Friday. Traders had not aggressively positioned in swaps ahead of 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. 

In the second half of trading, Brent crude for August delivery eased to $76 per barrel. Traders received fixed-rate contracts tracking the fall. The "tepid price reaction (in oil) signals Hormuz blockage still seen as unlikely," Dow Jones reported, citing analysts. Traders see the closure of the strait as unlikely, and even if executed, the blockage would only be temporary, they said. 

However, nearing the end of market hours, Brent crude rose slightly to $77.82, and swap traders "squared off", or kept neutral positions to trim any exposure to risk in case the West Asia conflict escalated further overnight.

An exception was the 3-year swap rate, which ended at 5.60%, off the day's high of 5.62%. Dealers said banks were likely paying fixed rates to hedge their bond purchases for insurance companies for forward rate agreements. Others said that a corporate entity was hedging its bond issuance, or that a trader was hedging a three-year gilt purchase. "It's possible that a corporate is unwinding its hedge for a four-year bond issuance it had done a year ago," a trader at a primary dealership said. 

"It looks like a FRA (forward rate agreement) to me," a dealer at another private sector bank said. "Or it could be corporates paying to hedge their bond-linked issuances. Today (Monday), many people have raised corp bonds."

US Treasury yields were little changed from Friday. The yield on the benchmark 10-year US Treasury note was at 4.40% at 1700 IST, against 4.37% at the same time Friday. 

OUTLOOK

On Tuesday, swap rates will track developments in the Iran-Israel conflict, dealers said. Traders keenly watch developments on the Strait of Hormuz and Iran's retaliatory move against the US. Traders speculate that Iran could attack US military bases in West Asia or commercial ships in the Strait. Swap traders will also closely track the movement of crude oil prices and the rupee against the dollar.

Swaps may also track the movement in US Treasury and gilt yields. Traders will keenly track technical levels as swaps are seen largely rangebound due to a lack of domestic cues, they said. 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% Tuesday. The five-year contract is seen at 5.68-5.84%.

End

US$1 = INR 86.7450

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

Edited by Saji George Titus

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