More Stories

Informist, Friday, Jul. 11, 2025

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates maturing within a year ended higher Friday, tracking a sharp rise in overnight borrowing rates after the Reserve Bank of India held a variable rate reverse repo auction for INR 2.5 trillion Friday, higher than traders' expectations of INR 1.5 trillion to INR 2 trillion, dealers said. A rise in US Treasury yields and hedging of bond forward-rate agreements also pushed swap rates higher across the curve. Longer-end swaps erased some gains, tracking the fall in gilt yields after the result of the weekly gilt auction indicated strong demand from long-term investors. 

The one-year swap rate ended at 5.54%, a tad up from 5.52% Thursday. The five-year swap rate ended at 5.70%, from 5.69% Thursday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 369.60 billion, sharply higher than INR 106.35 billion Thursday.

Swap rates opened higher after the RBI post market hours Thursday announced a seven-day VRRR for Friday, for INR 2.5 trillion. Susbequently, the call money market rate jumped above the repo rate to 5.55%, and the weighted average call money rate was 5.45% at 1700 IST, from 5.36% the previous session. The overnight Mumbai Interbank Offer Rate--the floating leg of the OIS contract--rose to 5.40% Friday, up 11 basis points from Thursday.

"For the near term I think MIBOR will hover in the 5.40-5.50% range," a dealer at a private sector bank said. "Then again if call rates fall to SDF (Standing Deposit Facility) in the middle (between VRRR auctions) then there'll be some easing." Some traders expect the central bank to announce an overnight VRRR on Tuesday or Wednesday since Friday's auction was not fully subscribed. 

Traders unwound their received fixed rate contracts in swap rates maturing within a year, dealers said. The six-month swap rate was the second-most traded, after the one-year swap, in terms of total notional volumes. Short-term swaps ended 3-4 basis points higher.

"I think that the RBI has indicated it wants rates at SDF or even above," a trader at a primary dealership said. "So it will do whatever needed to limit liquidity surplus at 1% of NDTL (net demand and time liabilities), so we're seeing some unwinding in short-term because before the VRRRs everyone had received (fixed rate contracts)."

The yield on the 10-year US Treasury note rose to 4.37% at 1700 IST, slightly higher from 4.35% at the same time Thursday. The slight rise also pushed up swap rates, dealers said. However, some foreign banks were looking to receive fixed-rate contracts on the five-year swap at the higher end of its recent trading range, dealers said. The five-year swap rate was unable to rise above the key 5.72% level, leading some traders who were betting on the five-year breaking 5.72% to exit their contracts, dealers said. 

Traders also hedged their bond forward-rate agreements with insurance companies by paying fixed-rate contracts in long-term swaps. At the weekly gilt auction, the RBI set a coupon of 6.28% on the new 2032 bond, against an Informist poll estimate of 6.29%. The cut-off price on the 7.09%, 2074 bond was set at INR 99.12, higher than INR 98.91 estimated in an Informist poll. The government sold INR 110 billion of the new seven-year, 2032 bond and INR 140 billion of the 7.09%, 2074 bond.

Traders said that a large state-owned insurer bought around INR 45 billion of the long-term bond for forward-rate agreements, along with purchases from other insurers and provident funds, dealers said. Gilt yields subsequently fell after the auction result indicated healthy demand from long-term investors, which offset some of the bias towards paying fixed rates in swaps, dealers said. 

OUTLOOK
Swaps are not traded Saturdays. On Monday, short-term swap rates may open slightly lower after the RBI post market hours announced that the central government will buy back bonds worth INR 250 billion Thursday. The liquidity infusion may be a welcome relief for traders since the RBI's recent liquidity moves have sparked confusion in the market.

Swaps may also take cues from the movement in US Treasury yields over the weekend, after comments from US Federal Reserve officials. Swap traders will also track developments in US-India trade talks and the negotiations between the US and other trading partners, dealers said. The impact of a US-India trade deal, or the lack of one, will be seen on swaps through the movement in the rupee against the dollar, dealers said.

On the domestic front, traders will watch for announcements of VRRR auctions by the RBI. They are closely tracking overnight borrowing rates. The overnight MIBOR fixing will also lend cues after the initial trading hours. 

Traders also await with interest the development of a collateralised money market benchmark. Financial Benchmarks India Ltd. published the new benchmark Secured Overnight Rupee Rate for the first time earlier this week. The one-year swap rate is seen in the range of 5.46-5.60% Monday. The five-year contract is seen at 5.62-5.78%.

End

Edited by Deepshikha Bhardwaj

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.