More Stories

Informist, Thursday, Jul. 3, 2025

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended tad down on offshore flows, ahead of the release of US non-farm payrolls data for June, dealers said. Onshore traders preferred paying fixed-rate contracts at current levels, they said.

The one-year swap rate ended at 5.51%, down slightly from 5.52% Wednesday. The five-year swap rate ended at 5.65%, from 5.67% Wednesday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 253.70 billion, slightly lower than INR 297.65 billion Wednesday.

Swap rates opened lower on offshore flows, likely as foreign investors found the widening interest rate differential between Indian gilt yields and US Treasury yields lucrative, dealers said. Additionally, hopes of the US non-farm payrolls for June being lower than the previous month aided the receiving bias in swaps, dealers said. Non-farm payrolls are seen rising by 110,000 in June, according to consensus estimates by The Wall Street Journal, against a rise of 139,000 in May.

"There is that expectation that US yields could fall more, which would make the differential wider because our yields have already risen quite a bit," a dealer at a private sector bank said. The yield on the 10-year benchmark US Treasury note was 4.25% at 1700 IST, down from 4.28% at the same time Wednesday. 

On the domestic front, traders expected the Reserve Bank of India to announce a variable rate reverse repo auction of INR 1.5 trillion to INR 2 trillion for Friday. The RBI had held a VRRR auction for INR 1.00 trillion on Jun. 27, the reversal of which is due Friday. Traders expect another VRRR auction to be held Friday to roll over the previous auction amount and drain additional liquidity from the banking system to maintain it at around 1% of banks' net demand and time liabilities, which is about INR 2.31 trillion, as per the latest data. The net liquidity absorbed by the RBI on Wednesday was INR 3.75 trillion, the highest since Jun. 1, 2022, data from the central bank showed, which aided the fall in swap rates at open.

There were divergent views on how a potential VRRR announcement would impact money market rates, dealers said. Some traders were concerned the weighted average call and triparty repo rate would align closer to the repo rate of 5.50% rather than the Standing Deposit Facility rate of 5.25%, where it has stayed since Tuesday. 
Others said such concerns were overblown as the RBI would limit the size of the auctions to a level which would not push up overnight rates, but prevent them from falling below 5.25%.

"People are looking at MIBOR fixing because MIBOR could go further down from here because of surplus liquidity," a trader at a primary dealership said. The overnight Mumbai Interbank Offer Rate was 5.30%, unchanged from Wednesday. 

Dealers said the 5-year swap rate touched the lower end of the recent trading range, and had more scope to rise rather than fall after it hit the key 5.64% level. 

"I think there's more of an upside to 5-year (OIS) since it's already quite low," a trader at another primary dealership said. "The range would be 5.65% to 5.77% but if US yields surprise, then 5-year could break 5.64% and go to 5.60% or 5.55%."

OUTLOOK

Friday, swap rates are likely to take cues from movement in US Treasury yields after the US employment report for June and US weekly jobless claims for the week ended Saturday. Swap traders are closely tracking comments from Fed officials and the movement of US yields. Some traders said that if the FOMC votes to cut rates at the end of this month, then the five-year swap rate could fall by more than 10 bps as domestic rate cut expectations could resurface. US financial markets are shut on Friday for American Independence Day.

Data released post-market hours showed that US jobless claims for the week ended Saturday fell by 4,000 to 233,000, but higher than a consensus estimate of 240,000. Non-farm payrolls rose by 147,000, higher than consensus estimates of 110,000.

On the domestic front, traders will watch for announcements of further variable rate reverse repo auctions by the RBI. Traders are closely tracking overnight borrowing rates, which have cooled after rising earlier in the week. The daily MIBOR fixing will also lend cues after the initial hours.

Swap rates may also track the movement of gilt yields. The one-year swap rate is seen in the range of 5.46-5.60% Friday. The five-year contract is seen at 5.62-5.84%.

End

Edited by Saji George Titus

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2025. All rights reserved.