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Informist, Thursday, Sept. 4, 2025

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended lower Thursday tracking a fall in US Treasury yields as traders cemented their view of a rate cut by the US Federal Open Market Committee this month, dealers said. A fall in government bond yields limited the usual paying pressure from domestic traders. 

 

The one-year swap rate ended at 5.51%, down from 5.53% Wednesday. The five-year swap rate ended at 5.75%, down from 5.79% Wednesday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform fell to INR 284.00 billion from INR 406.55 billion the previous session.

 

The Job Openings and Labor Turnover Survey data showed Wednesday that US job openings fell to 7.18 million July from 7.35 million in the revised reading for June. Job openings fell the most in 10 months and were lower than the 7.4 million anticipated. The data increased chances of a rate cut in the US this month, with the CME FedWatch tool showing traders are now almost fully pricing in a 25-basis-points rate cut by the FOMC at its Sept. 16-17 meeting. The yield on the 10-year US Treasury note fell to 4.21% by 1700 IST from 4.28% at the end of Indian market hours Wednesday.

 

Weakening labour market dynamics and comments from US Federal Reserve Chair Jerome Powell in August had led to traders ramping up their policy easing bets in the US, which has driven offshore traders to receive fixed rates in India's OIS market. Some traders also expected the weakness to show in the US non-farm payrolls data, scheduled for release on Friday. Ahead of the scheduled long weekend, some traders positioned for the US jobs data Thursday, dealers said. However, with the Maharashtra government notifying a change in holiday to Monday from Friday, several traders avoided large bets on the US jobs data expecting the market to remain operational.

 

"It was a very obvious receiving move (in OIS): people are positioning for a US rate cut here because our (swap) rates are high," a dealer at a foreign bank said. "Since the Maharashtra government notification was floating around, a few people actually avoided trading and especially paying waiting for the market to open tomorrow (Friday)."

 

The one-year swap was the most-traded contract Thursday. Traders unwound their earlier bets on paying swap rates and buying gilts as yields on government bonds eased, leading to profit booking in the fixed income instruments. The GST Council approved a move to a two-slab structure Wednesday and pegged the total revenue loss at INR 930 billion. However, INR 450 billion from the new 40% tax on "sin" and luxury goods will mitigate some of the shortfall, a state minister said. The net annual loss in revenues of INR 480 billion is lower than traders had anticipated, of around INR 600 billion-INR 1 trillion. With this, the 10-year gilt yield fell 5 basis points to 6.49% Thursday.

 

Despite the easing of swap rates, dealers said that the outlook on a further rate cut in India seemed uncertain after the fiscal impulse to growth from the goods and services tax rate rationalisation and income tax cuts earlier this year. Near-term swap rates continued to indicate another repo rate priced in for the December meeting of the Monetary Policy Committee, dealers said. The MPC cut the policy rate by 100 basis points between February and June, before standing pat on rates in August.

 

"Most of the action is of hedging, especially by domestic entities. Since bonds have improved, there is also some receiving in swaps,"  a dealer at a primary dealership said. "It has kind of stopped being representative of rate expectations really."

 

OUTLOOK
The RBI said money markets will remain open on Friday and will shut on Monday for Id-e-Milad, following the Maharashtra government's notification. On Friday, swap rates will track the movement of US Treasury yields ahead of key non-farm payrolls data after Indian market hours Friday. The 10-year US Treasury yield was largely unchanged after weekly unemployment data showed jobless claims for the week ended Saturday were the highest since June. Initial jobless claims rose to 237,000, against a consensus expectation of 230,000.

 

Offshore flows to receive fixed rates are likely to continue on expectation of a rate cut by the US FOMC this month, its first since December. Traders may also take cues from geopolitical developments, especially on the US-imposed tariffs on India. Lack of scheduled domestic cues on interest rates may keep some traders on the sidelines, dealers said.

 

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 5.48-5.58% Friday. The five-year contract is seen at 5.72-5.82%.

 

	At 1700 IST	WEDNESDAY
1-year OIS	5.51%	5.53%
2-year OIS	5.47%	5.50%
5-year OIS	5.75%	5.79%
2-year MIFOR	5.99%	6.04%
5-year MIFOR	6.30%	6.35%

 

End

 

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

 

Edited by Akul Nishant Akhoury

 

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