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Informist, Monday, Sept. 1, 2025

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended higher Monday as onshore traders paid fixed rate contracts and unwound bets of a rate cut by the Reserve Bank of India's Monetary Policy Committee in October, dealers said. Swap rates also tracked the rise in government bond yields.

 

The one-year swap rate ended at 5.55%, up from 5.52% Friday. The five-year swap rate ended at 5.81%, against 5.79% Friday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 258.30 billion, slightly lower than INR 285.40 billion in the previous session.

 

Swaps opened higher as onshore traders paid fixed rates after higher-than-expected GDP growth reduced hopes of a domestic rate cut in 2025, dealers said. Data released Friday showed India's GDP growth for Apr-Jun was at a five-quarter high of 7.8% as against 7.4% a quarter ago. An Informist poll of 17 economists saw GDP growth for the June quarter at 6.7% while the Reserve Bank of India's estimate was 6.5%. Though traders still see the outlook for India's FY26 GDP growth as weak due to the effect of US President Donald Trump's tariffs, they unwound bets of a rate cut by the MPC in October.

 

However, swaps were off the day's high as offshore traders received fixed rate contracts on bets of the US Federal Open Market Committee cutting interest rates by 25 basis points at its upcoming meeting in September. At 1700 IST, Fed fund futures traders showed a near 90% chance of a 25-bps rate cut by the FOMC, up from 84% a week ago, according to the CME's FedWatch Tool.

 

"OIS is pulled in two directions, the Indian (onshore) bias is to pay while offshore is betting on a rate cut in the US," a dealer at a private sector bank said. "So OIS is stuck. If it (the five-year swap rate) breaks 5.85% then we can see some paying."

 

If the FOMC does cut rates, traders see little to no impact on Indian swap rates, due to a bleak view on rate cuts in India. At most, a rate cut in the US could limit an upside in swap rates, dealers said.

 

Swap rates largely tracked the upward movement in bond yields Monday. The 10-year benchmark 6.33%, 2035 gilt yield ended nearly 2 bps higher at 6.5850%, after touching an intraday high of 6.6272%. Bond yields rose as demand for gilts and state bonds is muted while supply is increasing.

 

However, some traders remain optimistic of the RBI announcing an open-market purchase of gilts through auction, due to the sharp rise in gilt yields in August. The central bank is likely to meet some bank executives soon, but the agenda of the meeting is unclear, dealers said, with reasons ranging from the central government's borrowing plan for Oct-Mar, to the recent rise in bond yields.

 

"Everyone is just speculating that there will be some meeting because market has realised yields have risen so much," a dealer at another private sector bank said.

 

OUTLOOK
On Tuesday, swaps will track the movement of gilt yields during the day. Swaps may also track the movement of US Treasury yields in early Asian trade, dealers said. US markets are closed Monday for Labour Day holiday.

 

Traders may also take cues from geopolitical developments, after a US federal court ruled that most of Trump's global levies were imposed illegally. For now, however, the duties remain in place.

 

The one-year swap rate is seen in the range of 5.40-5.60% Tuesday. The five-year contract is seen at 5.68-5.85%.

 

	At 1700 IST	FRIDAY
1-year OIS	5.55%	5.52%
2-year OIS	5.53%	5.51%
5-year OIS	5.81%	5.79%
2-year MIFOR	6.07%	6.00%
5-year MIFOR	6.36%	6.28%

 

End

 

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

 

Edited by Nishant Maher

 

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

 

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