India IRS Review
Dn on offshore receiving; traders unwind bets before FOMC
This story was originally published at 18:30 IST on 29 July 2025
Register to read our real-time news.Informist, Tuesday, Jul. 29, 2025
By Cassandra Carvalho
MUMBAI – Overnight indexed swap rates ended down in choppy trade Tuesday on likely offshore flows. Traders unwound positions ahead of the US Federal Open Market Committee meeting and before a slew of economic data from the US. A large corporate also received fixed contracts, which pulled down swaps, dealers said.
The one-year swap rate ended at 5.52%, down from 5.55% Monday. The five-year swap rate ended at 5.73%, down from 5.75% the previous day. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 313.05 billion, higher than INR 286.15 billion Monday. The yield on the benchmark 10-year US Treasury note was 4.40% at 1700 IST, down from 4.41% at the same time Monday.
Traders said a large domestic corporate entity received fixed-rate contracts in early trade. Offshore flows, especially from hedge funds, helped the fall in swaps, dealers said. Going into the FOMC meeting, domestic traders wished to keep their portfolios light and trimmed paid or received contracts, they said. Though traders expect the FOMC to hold rates steady, they will keenly watch the commentary from US Federal Reserve officials, especially due to recent backlash from US President Donald Trump for not cutting rates sooner. Some believe the Reserve Bank of India's rate-setting panel will not cut rates further until the FOMC does, to protect the interest rate differential between the two countries.
Traders also positioned for a data-heavy week in the US. The US consumer confidence index for July and the job openings & labor turnover survey for June are due post-market hours. The data on US personal income and outlays for June is due Thursday, and the US employment report, which includes the crucial non-farm payrolls data, is due Friday.
"Those who had paid expecting that it'll (5-year swap rate) go above the 5.75% levels are unwinding that trade now," a dealer at a private sector bank said.
The movement of rates and volume was concentrated in the one-year swap rate, as the rate was marginally higher than the repo rate of 5.50% and higher than the two-year swap rate, which ended at 5.49%.
"The one-year and two-year (swaps) are the most lucrative across the curve," a trader at a primary dealership said. "Also, because it is the most rate sensitive. Right now, the 1-year forward is still 5.50% only, so swaps are not pricing in any cut."
OUTLOOK
On Wednesday, overnight indexed swap rates may track the movement of US Treasury yields and gilt yields. Traders don't see any significant cues on domestic interest rates before the RBI's rate-setting panel's meeting next week.
Near-term swap rates may take cues from the movement in overnight MIBOR, which is expected to hover around 5.30-5.40%, dealers said.
On the liquidity front, traders have priced in overnight borrowing rates close to the repo, not below or above, and await the central bank's draft guidelines on the liquidity management framework expected at the end of this month. Dealers expect the RBI to define the optimal level of liquidity in the banking system in the draft guidelines.
On the global front, traders await the outcome of the US Federal Open Market Committee's meeting. Trump's pause on 'reciprocal' tariffs also ends Friday. Some traders are sceptical about a trade deal between India and the US before the deadline.
The one-year swap rate is seen in the range of 5.42-5.55% Wednesday. The five-year contract is seen at 5.62-5.78%.
At 1700 IST | MONDAY | |
1-year OIS | 5.52% | 5.55% |
2-year OIS | 5.49% | 5.52% |
5-year OIS | 5.73% | 5.75% |
2-year MIFOR | 6.04% | 6.06-6.18% |
5-year MIFOR | 6.25% | 6.27-6.39% |
End
Edited by Saji George Titus
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