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Informist, Thursday, Sept. 11, 2025

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended little changed due to a lack of fresh cues on domestic interest rates. Some traders received fixed rates in the five-year swap rate ahead of the US CPI data for August, due after market hours, though activity from offshore traders was muted before the data, dealers said.

 

The one-year swap rate ended at 5.46%, against 5.47% Wednesday. The five-year swap rate ended at 5.68%, against 5.70% on Wednesday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 384.00 billion, sharply down from INR 724.75 billion Wednesday.

 

According to a Reuters poll, US headline CPI was seen rising 0.3% in August and 2.9% year-on-year. Meanwhile, data released Wednesday showed a softer-than-expected US producer price index, cementing expectations that the US Federal Reserve will cut interest rates next week for the first time this year. The producer price index for final demand slipped 0.1% in August. Economists polled by Reuters had forecast the index to rise 0.3%.

 

While the view of a 25-basis-point rate cut in the US next week has been broadly factored into both US Treasury yields and India's OIS rates, traders remain optimistic that the US Federal Open Market Committee may opt to cut policy rates by 50 bps, noting the recent labour market weakness. The CME FedWatch tool showed Fed funds futures show only an 8% chance of the jumbo rate cut as of 1700 IST. Last year, the FOMC started its Sept-Dec rate-cutting cycle with a 50-bp rate cut. A slight fall in the 10-year US Treasury yield overnight also led to traders receiving fixed rates.

 

"US PPI (producer price index) was on the lower side, so there's a good chance CPI is also under control," a dealer at a foreign bank said. "That is seen as essential among the US Treasury traders for a 50-basis-point cut, if it has to come. Personally, I think even the labour data has just shown that outright."

 

Bets on rate cuts in India remain scant in the market, though OIS rates in up to two years have been inching lower through the week. Most traders attributed this not to rate cut bets but to the overnight Mumbai Interbank Outright Rate – the floating leg of the OIS contract – having been set at 5.40% or lower since Sept. 3, against an average of over 5.50% in the second half of August, dealers said.

 

The three-month contract saw record trading volumes this week, since its maturity has included the next two domestic monetary policy decisions. It was the most-traded swap on Thursday as well, with volumes of INR 132.50 billion. The Reserve Bank of India Monetary Policy Committee's next scheduled rate decisions are on Oct. 1 and Dec. 5.

 

"Those who want to take a punt on a 50-basis-point rate cut in the US and the outside chance of a rate cut in India are piling into the short-term contracts," a dealer at a private sector bank said. "The PV01 (price value per basis point) of a three-month contract is very low, but it is the best contract to take the view. So people have to take large positions to make money."

 

OUTLOOK

On Friday, swap rates are likely to track the movement in US Treasury yields after the release of US CPI data for August. Data released at 1800 IST showed that headline inflation in August rose 2.9% on year in the US, in line with estimates. Core CPI inflation rose 3.1% on year, also in line with estimates. At 1811 IST, the CME FedWatch tool showed that Fed fund futures reflected a 5.6% probability of a 50 bps rate cut by the FOMC next week, down from 8.2?fore the data. Jobless claims for the week ended Saturday in the US rose by 27,000 to 263,000, higher than a Wall Street Journal estimate of 235,000, and the highest level in almost four years.

 

On the domestic front, the next cue on interest rates will be India's CPI inflation data for August at 1600 IST Friday, dealers said. CPI inflation in India likely rose to 2.1% in August from an eight-year low in July because of the fading of the statistical effect of a favourable base and a rise in food and gold prices, according to an Informist poll. The reading was broadly priced into OIS rates, and would not move the market if it were on expected lines, dealers said.

 

A further fall in swap rates is unlikely, given the expected rate cut in the US, but traders remain uncertain about further rate cuts in India. Some traders may also pay the two- and five-year swap rates as part of bond forward or forward-rate agreements with agreements before the weekly gilt auction on Friday. At the same time, offshore traders are likely to continue receiving fixed rates and put downward pressure on swap rates, dealers said. 

 

Traders may also take cues from geopolitical developments, especially on the US tariffs on Indian goods. There has been some thaw in the relations between the two countries. US President Donald Trump on Tuesday said he was "pleased" to announce that India and the US were continuing negotiations to address the trade barriers between the two nations, and that there should be no difficulty in successfully concluding a trade deal. Mirroring Trump's sentiment on India-US trade negotiations, Prime Minister Narendra Modi said on Wednesday that the teams from the two countries were working to conclude the discussions at the earliest.

 

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%.

 

	At 1700 IST	WEDNESDAY
1-year OIS	5.46%	5.47%
2-year OIS	5.44%	5.44%
5-year OIS	5.68%	5.70%
2-year MIFOR	5.97%	5.96%
5-year MIFOR	6.29%	6.28%

 

End

 

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

 

Edited by Saji George Titus

 

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

 

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