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Informist, Friday, Oct. 10, 2025

 

By Srijita Bose

 

MUMBAI – Overnight indexed swap rates ended higher as the overnight Mumbai Interbank Offered Rate - the floating leg in an OIS contract – rose 16 basis points to 5.66% on Friday. However, some swaps ended off highs as traders expected money markets would cool down next week, dealers said. 

 

The one-year swap rate closed at 5.44%, up from 5.42% Thursday. The five-year swap rate closed at 5.66%, up from 5.63% Thursday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 193.15 billion, sharply lower from INR 309.65 billion in the previous session.

 

Overnight money market rates were up in early trade as some dealers said liquidity conditions had tightened among several market participants amid a string of high-profile initial public offerings. These public offerings led to capital being tied up for some financial institutions and a cash crunch in both the interbank market and the triparty repo market, which is a collateralised funding market that includes mutual funds. Additionally, dealers pointed out mismanagement in the effective allocation of funds, with market participants parking INR 468.60 billion worth of funds with the RBI in its variable rate reverse repo auction on Thursday, which also drove up overnight rates. 

 

Traders paid fixed rates to unwind their earlier positions, dealers said. The move was seen in swaps maturing in two years or more, as traders had received fixed rates earlier in the week, expecting a fall in overnight rates, they said. Some traders also likely paid fixed rates to hedge against forward rate agreements written in the 40-year benchmark gilt at auction Friday, dealers said. 

 

"Overnight rates have risen sharply, so in that sense OIS rates are pretty well behaved," a dealer at a private sector bank said. "Some of it was also likely FRA (forward rate agreement) demand."

 

However, the Reserve Bank of India conducted a variable rate repo auction, which cooled down overnight rates, thereby also limiting the rise in swap rates, dealers said. However, the ease in rates in longer tenure swaps was limited as offshore traders likely unwound some of their positions while shedding gilts and paying the five-year OIS, dealers said.

 

Traders also expect overnight rates not to rise above the RBI's repo rate of 5.50%, as liquidity surplus in the banking system is expected to remain comfortable, dealers said. The banking system liquidity surplus, as measured by the RBI's net liquidity absorbed, rose to INR 1.56 trillion Thursday from INR 1.29 trillion on Wednesday.

 

"Rates will be supported because there is enough system liquidity. The rise today and yesterday was just some amount of bias working, " a dealer at a primary dealership said. "Also, the rate cut expectations are still there, so I don't see the range break (in OIS)."

 

OUTLOOK

Swaps are not traded on Saturdays. On Monday, swap rates may take cues from the movement in US Treasury yields. Traders will also watch out for the CPI inflation print, due at 1600 IST on Monday, for further cues on rates, dealers said. 

 

CPI inflation in India likely fell to 1.5% in September, the lowest since June 2017, according to an Informist poll. 

 

Any sharp movement in gilt yields could also lend cues to OIS rates, they said. Any movement in overnight money market rates will also lend cues to swaps, dealers said. Traders will watch out for any further fine-tuning of liquidity operations by the RBI, dealers said. Traders may continue receiving fixed rates and ramp up bets of one or more rate cuts in December and beyond after the MPC signalled that low inflation had opened space for policy easing, dealers said.

 

On the global front, traders may track developments in the US after the government partially shut down last week. Traders may take cues from geopolitical developments, especially on India-US trade talks.

 

Swaps may also track the movement of the rupee against the dollar and crude oil prices. The one-year swap rate is seen in the range of 5.40-5.50% and the five-year contract at 5.62-5.73%.

 

	At 1700 IST	THURSDAY
1-year OIS	5.44%	5.42%
2-year OIS	5.38%	5.36%
5-year OIS	5.66%	5.63%
2-year MIFOR	5.85%	5.82%
5-year MIFOR	6.25%	6.21%

 

End

 

Edited by Saji George Titus

 

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