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Informist, Friday, Sept. 5, 2025

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates fell, tracking the US Treasury yields after a poor run of jobs data so far this week cemented hopes that the US Federal Open Market Committee would cut interest rates in September, dealers said. Traders also expected US non-farm payrolls data for August, to be released after market hours, to make a case for a deeper rate cut cycle in the US than previously anticipated.

The one-year swap rate ended at 5.49%, down from 5.51% Thursday. The five-year swap rate ended at 5.72%, down from 5.75% Thursday, recording its largest weekly fall in four months. The total notional trade volume on Clearing Corp. of India's derivatives trading platform rose to INR 352.65 billion from INR 284.00 billion the previous session.

"Offshore guys are very gung-ho about US rates right now," a dealer at a private sector bank said. "Because of that, there's really no reason for any trader onshore to pay – everyone expects a September rate cut (in the US) anyway."

Data after Indian market hours Thursday showed US private sector payrolls increased by 54,000 in August, according to ADP Research data, missing estimates. Further, US jobless claims for the week ended Saturday rose to the highest since June at 237,000. The 10-year US Treasury yield fell to 4.16% at 1700 IST from 4.22% Thursday, after a similar fall the previous day as job openings in the US at July were lower than expected.

Moreover, the key US non-farm payrolls data was scheduled after Indian market hours, and with US yields easing before the print, traders redoubled their interest in receiving OIS rates, dealers said. July's disappointing reading and downwardly revised projections to job growth numbers had led to firming bets a monetary policy easing cycle in the world's largest economy.

"The focus is entirely on the US rates right now, at least in the swaps market," a dealer at a primary dealership said. "I think we have a good chance to fall back to 5.62% levels (on the five-year swap rate) if the NFP (non-farm payrolls data) is soft." After market hours, data showed the US added only 22,000 jobs in August, against a consensus estimate of 75,000.

The FOMC is universally expected to cut its policy rate by 25 basis points as its Sept. 16-17 meeting, according to the CME FedWatch tool, with traders now ramping up bets of further rate cuts in 2025 following constantly weak labour market data. This may also open the door to further rate cuts in India in either October or December, dealers said. The one-year swap rate was the most traded contract. However, domestic data will have to be reassessed after the government announced sweeping goods and services tax rationalisation that may provide stimulus to the economy, they said. 

OUTLOOK

Money markets will remain shut on Monday for Id-e-Milad, following the Maharashtra government's notification. On Tuesday, swap rates will likely fall sharply, tracking US Treasury yields after the non-farm payrolls data, dealers said. 

The data showed the US only added 22,000 jobs in August, well below the consensus estimate of 75,000 job additions. The unemployment rate rose to 4.3% from 4.2% in July. Following the reading, the US FOMC is expected to cut policy rates by at least 25 bps later this month, with 12.0% of the market expecting a 50-bp cut, according to the CME FedWatch tool. The 10-year US Treasury yield fell below 4.07% at 1840 IST for the first time since early April.

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 5.42-5.55% Friday. The five-year contract is seen at 5.60-5.75%.

End

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

Edited by Deepshikha Bhardwaj

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