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Informist, Tuesday, Sept. 2, 2025

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended steady Tuesday, coming off the day's lows tracking an intraday rise in US Treasury yields, dealers said. However, the rise in swaps was limited due to receiving by offshore traders, dealers said.

The one-year swap rate ended at 5.54%, little changed from 5.55% Monday. The five-year swap rate ended at 5.81%, flat from Monday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 195.10 billion, lower than INR 258.30 billion the previous session.

Swaps had opened lower as offshore traders received fixed rate contracts, dealers said. Traders preferred receiving fixed rates in the two-year and five-year segments, dealers said. Current rates in Indian swaps were lucrative for offshore investors to receive, compared to other emerging markets. However, the paying bias was strong from domestic traders, due to lack of reasons to support rate cuts and a surge in government bond yields. Onshore traders preferred paying fixed rates when the five-year swap rate rose above the key technical level of 5.80%, after rising above the 5.78% level. Some traders see a further upside in swaps if the five-year rate rises above 5.85%.

A rise in US yields also limited the receiving in swaps. The yield on the 10-year benchmark US Treasury note was 4.29% at 1700 IST Tuesday, up from 4.21% at the same time Friday. US markets were shut Monday for Labor Day. US yields rose ahead of key US economic data, including ISM manufacturing data due post market hours Tuesday and employment data Friday.

The OIS rate curve is largely flat, with the two-month and two-year swap rate trading at almost the same rate. It reflects the current expectations of the market, wherein dealers see neither a rate cut nor a rate hike, dealers said. "OIS is currently showing a steady curve with no (rate) cuts for the next one to one-and-a-half years," a dealer at a private sector bank said.

Swap rates also tracked the movement of bond yields. The 10-year benchmark 6.33%, 2035 gilt yield Tuesday ended nearly 2 basis points lower at 6.5658%, on likely purchases by foreign portfolio investors and the state bond auction results being largely in line with expectations. Some traders were optimistic of the Reserve Bank of India announcing an open-market purchase of gilts through auction, or the government reducing its long-term borrowing in Oct-Mar, to soothe the bond market after the sharp rise in gilt yields in August. The central bank is scheduled to meet market participants this week and the next, including a meeting with some state-owned banks Tuesday, dealers said.

OUTLOOK
On Wednesday, swaps will track the movement of gilt yields during the day. Swaps may also track the movement of US Treasury yields after the release of economic data in the US, dealers said. Offshore flows due to expectations of a rate cut by the US Federal Open Market Committee at its meeting in September may cap any paying by onshore traders, they said. Traders may also take cues from geopolitical developments, as US President Donald Trump is scheduled to make a statement at 2330 IST.

Swaps may also track the movement of crude oil prices and the rupee against the dollar. The one-year swap rate is seen in the range of 5.48-5.60% Wednesday. The five-year contract is seen at 5.75-5.85%.

End

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

Edited by Ashish Shirke

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