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Informist, Thursday, Aug. 28, 2025

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended lower on Thursday, as offshore traders received fixed rate contracts, dealers said. Some onshore traders also received fixed rate contracts on hope that the Reserve Bank of India will intervene in the government bond market to prevent a further rise in bond yields, either through purchase of gilts through an open market operation auction or through on-screen gilt purchases. 

 

The one-year swap rate ended at 5.49%, down from 5.52% Tuesday. The five-year swap rate ended at 5.74%, against 5.78% Tuesday. The five-year swap rate fell the most since Aug. 4. Indian financial markets were shut Wednesday for Ganesh Chaturthi. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 245.45 billion, lower than INR 355.35 billion in the previous session.

 

Swaps rates fell as offshore traders preferred receiving fixed rate contracts, tracking a fall in US Treasury yields and on bets of weak economic data in the US. Weekly jobless claims in the US for the week ended Saturday are seen slowing to 230,000 from 235,000 the previous week. As per consensus estimates by The Wall Street Journal, the second estimate for Apr-Jun GDP growth in the US is expected to rise to 3.1% from 3.0% in the first reading. The yield on the benchmark 10-year US Treasury note was 4.23% at 1700 IST, down from 4.28% at the same time Tuesday. 

 

"Offshore traders have taken a chunk of received positions in the morning," a dealer at a primary dealership said. "They are active today after US yields have fallen, plus there is US GDP also that could come weak."

 

Some onshore traders also received fixed rates on bets that the RBI would announce some measure to allay traders' concerns and curb a further rise in bond yields. Banks have urged the central bank to introduce a measure such as an OMO auction to soothe the bond market, dealers said. The yield on the 10-year benchmark gilt hit a high of 6.66% Tuesday, the most since Mar. 19. Foreign banks also received fixed rate contracts Thursday. 

 

"In OIS, its mostly offshore flows since US yields have also come down," a dealer a private sector bank said. "FPIs are buying gilts also, and some foreign banks also may be receiving. But some bond-swaps may also be there."

 

However, swap rates recovered some of the fall as traders paid fixed-rate contracts to hedge their purchases in the bond market. The 10-year benchmark 6.33%, 2035 gilt yield ended nearly 7 bps lower Thursday.  

 

Traders also positioned ahead of India's Apr-Jun GDP growth data, due at 1600 IST Friday. Some are hopeful of at least another 25-bps cut from the current repo rate of 5.50% by the RBI's Monetary Policy Committee if GDP growth slows at a sharper pace than the RBI expects. This is more likely now with the 50% tariffs on India's exports to the US that took effect Wednesday, dealers said.

 

OUTLOOK
On Friday, swap rates will track the movement of US Treasury yields at opening, after the release of economic data in the US and comments by US Federal Reserve officials.

 

US Federal Reserve Governor Christopher Waller, one of the governors who had dissented against the FOMC consensus during the July policy meeting and is seen as a key contender to be the next Fed chairperson, is scheduled to speak at 0330 IST Friday. Fed fund futures traders now show an 87% chance of a 25-basis-point rate cut by the US FOMC in September, up from 75% a week ago, according to the CME's FedWatch Tool. 

 

On the domestic front, swap rates will also track the movement of gilt yields during the day. However, volumes may be muted due to caution ahead of India's GDP growth data for Apr-Jun, due to be released at 1600 IST Friday. According to an Informist poll of 17 economists, India's GDP is expected to have expanded 6.7% in the first quarter of FY26. Some traders expect the print to be lower than the RBI's forecast of 6.5%, while some expect it to be higher. 

 

While India's goods and services tax reforms are seen bringing inflation down, the RBI's rate-setting panel is only likely to cut rates if growth takes a hit, dealers said. The GST reforms are seen improving GDP growth and CPI inflation may be below the RBI's forecast of 3.1% for FY26 by 20-50 bps, they said.

 

Post market hours on Friday, investors await the US Personal Income and Outlays for July, wherein core inflation is seen at its highest level since late 2023 at 2.9%. Traders also await developments on the imposition of tariffs by the US on India, which took effect Wednesday morning.

 

The one-year swap rate is seen in the range of 5.40-5.60% Friday. The five-year contract is seen at 5.68-5.83%.

 

	At 1700 IST	TUESDAY
1-year OIS	5.49%	5.52%
2-year OIS	5.46%	5.51%
5-year OIS	5.74%	5.78%
2-year MIFOR	6.00%	6.03%
5-year MIFOR	6.28%	6.13%

 

End

 

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

 

Edited by Avishek Dutta

 

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