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Informist, Tuesday, Jun. 24, 2025

By Cassandra Carvalho 

MUMBAI – Overnight indexed swap rates ended sharply down after US President Donald Trump said that Israel would not retaliate against Iran and that the Iran-Israel ceasefire would not be broken. Trump's announcement on Truth Social was just near the end of market hours and spurred a sudden fall in swap rates, dealers said. 

Brent crude for August delivery was at $69.15 a barrel, the lowest since Jun. 12, against $77.82 a barrel at 1700 IST Monday. The one-year swap rate ended at 5.49%, compared to 5.53% Monday. The five-year swap rate ended at 5.67%, compared with 5.76% on the previous session. The five-year swap ended at its lowest since Jun. 5. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 468.25 billion, almost double from INR 281.05 billion Monday.

Nearing the end of Indian trading hours, Trump warned Israel not to retaliate against Iran, saying that it was a major violation of the ceasefire. "ISRAEL is not going to attack Iran. All planes will turn around and head home, while doing a friendly 'Plane Wave' to Iran. Nobody will be hurt, the Ceasefire is in effect!" Trump said in a post on Truth Social. Subsequently, the five-year swap rate fell below the key 5.68% level. 

"There is good opportunity to pay in OIS but today the last spur of receiving came because now people are thinking that the Israel-Iran conflict could be over in this week," a trader at a mutual fund said. "Mostly offshore guys are receiving these levels".

Swap rates had fallen during the day, tracking an intraday ease in crude oil prices due to a slew of comments from Trump on the Iran-Israel ceasefire. Trump said that the ceasefire between Iran and Israel had taken effect around mid-afternoon. Earlier in the day, Trump said both west Asian countries had agreed to a ceasefire after their final military operations, which had pulled down swaps at market open.

Swap rates opened sharply lower as early Tuesday, Trump said in a post on Truth Social, "It has been fully agreed by and between Israel and Iran that there will be a Complete and Total CEASEFIRE... for 12 hours, at which point the War will be considered, ENDED!"

Following the announcement, Brent crude for August delivery fell sharply to $69.55 a barrel, the lowest in over a week. However, Iranian foreign minister Seyed Abbas Araghchi said on X, formerly Twitter, that there was "NO "agreement" on any ceasefire or cessation of military operations". The lack of confirmation about the ceasefire from Iran limited the fall in swap rates as some traders were still uncertain as to whether the ceasefire would hold.

The minister said that if Israel stopped its aggression against Iran after 0400 Tehran time, Iran would not retaliate. Overnight, Iran attacked a US military base in Qatar. However, media reports indicate that Iran had informed Qatar and the US about the attack and that the retaliation was largely symbolic. Market sentiment had improved in the second half of trading Monday after crude inched lower intraday, and traders speculated that Iran was unlikely to close the Strait of Hormuz and even if that was the case, the block would only be temporary, they said. 

Offshore traders received fixed rate contracts as fears of rising inflation due to a jump in crude oil prices ebbed, dealers said. Market sentiment also improved as escalation in the geopolitical crisis was seen unlikely, dealers said. A state-owned corporate entity was also likely receiving fixed rates to hedge its corporate bond issuances, dealers said.  

Later in the day, crude oil prices eased further after Trump said "THE CEASEFIRE IS NOW IN EFFECT" in a post on Truth Social. Brent crude for August delivery was at $68.62 a barrel, down from $69.39 at 0900 IST. Following the development, the five-year swap rate fell below the key technical level of 5.68%, but did not sustain the fall. 

The fall in swap rates was aided by an overnight fall in US yields, dealers said. US yields fell overnight after US Federal Reserve Governor Michelle Bowman said she could support a rate cut in July, if inflation pressures remained contained. 

"The scene for a sooner rate cut in the US is open now after the Fed officials' speeches, so we're closely tracking US yields," a dealer at another private sector bank said. 

However, both crude oil prices and US yields inched up during the day from their intraday lows after reports of Iran violating the ceasefire agreements and Israel promising retaliation, dealers said. Traders paid fixed rate contracts closely tracking the upward movement of US yields. Dealers said banks were also paying fixed rates to hedge their bond purchases for insurance companies through forward rate agreements. 

OUTLOOK

On Wednesday, swap rates are likely to open higher after the Reserve Bank of India announced a seven-day variable rate reverse repo for Friday for INR 1.00 trillion. This is the first VRRR auction since Nov. 29. Earlier this month, swap rates rose sharply on fears of restrictive monetary policy after Reuters cited a source aware of the central bank's thinking saying that "the RBI could start conducting variable rate reverse repo auctions to suck out surplus liquidity as and when required". Traders will track liquidity in the banking system and the overnight Mumbai Interbank Offer Rate for direction on short-term swap rates.

On the global front, traders will also track the developments in crude oil prices and the Iran-Israel conflict, though most traders said the conflict has largely ended. Traders will also track the movement of US Treasury yields after US Federal Reserve Board Chair Jerome Powell presents the Monetary Policy Report to the US House Financial Services Committee. The central bank Chair's testimony comes amid mounting pressure from Trump to begin cutting interest rates. On Tuesday, Atlanta Fed President Raphael Bostic said he expects only one rate cut late in 2025, indicating that the US Federal Open Market Committee has time before cutting interest rates.

Swaps may also track the movement of gilt yields. The one-year swap rate is seen in a range of 5.45-5.58% Wednesday. The five-year contract is seen at 5.62-5.84%.

End

US$1 = INR 85.9750

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

Edited by Deepshikha Bhardwaj

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