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Informist, Monday, Oct. 13, 2025

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates inched lower Monday tracking a fall in US Treasury yields Friday. Some traders also placed bets the Reserve Bank of India's Monetary Policy Committee would cut rates in December as well as in February, its next two meetings, dealers said.

 

The one-year swap rate closed at 5.43%, against 5.44% Friday. The five-year swap rate closed at 5.64%, down from 5.66% Friday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 374.30 billion, zooming from INR 193.15 billion in the previous session.

 

The 10-year US Treasury yield fell to 4.04% at settlement Friday, from 4.11% at 1700 IST Friday. Markets in the US and Japan are shut Monday, with the settlement level being the last level for OIS traders to track. Investors sought safe-haven assets amid US President Donald Trump's threat to impose massive tariffs on Chinese imports.

 

The extended partial shutdown of the US government is also seen weighing on activity in the world's largest economy. The administration is likely to fire federal government workers if the shutdown is extended, likely pushing up the unemployment rate in the US and making a stronger case for the US Federal Reserve to ease interest rates in a hurry. According to the CME FedWatch tool, the US Federal Open Market Committee is universally expected to cut rates by 25 basis points in two weeks' time while pricing in a 92% chance of rates being 50 bps lower by December.

 

"Lower US yields are definitely having an impact on swap rates," a dealer at a private-sector bank said. "The biggest thing over the past month or so has been that US yields (the 10-year US Treasury yield) is more likely to stay anchored at 4.00% rather than stray towards 4.50% due to the mounting pressure on the Fed (to cut rates)."

 

On the domestic front, India's CPI inflation for September came in at an over-eight-year low of 1.54%, in line with expectations, data released 1600 IST showed. India's CPI inflation was seen at 1.5% in an Informist poll of economists. Traders retained their bets that the Monetary Policy Committee would cut the repo rate of 5.50% by 25 basis points at its next meeting in December. The five-year swap rates had fallen more earlier in the day on bets of a softer-than-expected inflation reading, but some domestic traders paid fixed rates after the release, dealers said.

 

"It (February rate cut) is not priced in, but it is getting priced in as traders check what the next step is going to be," a dealer at a primary dealership said. "But even then, you are only in line to make less than 10 bps--so it makes sense for some people to go heavy and others can stay out."

 

The RBI's rate-setting panel has already signalled it has room to ease monetary policy to support growth in the coming quarters, especially after the central bank revised down its GDP growth forecasts starting from the December quarter due to the 50% tariff on India's exports to the US. Some traders were also betting that the policy easing would extend to a rate cut in February, especially as they expect December quarter CPI inflation to remain below the RBI's forecast of 1.8%. This would be helped both by benign food prices and easing in some core inflation segments due to the goods and services tax cuts, effective Sept. 22, dealers said.

 

OUTLOOK

Tuesday, swap rates may take cues from the movement in US Treasury yields in early Asian trade. Traders may continue receiving fixed rates and ramp up bets of one or more rate cuts in December and beyond after the Monetary Policy Committee signalled that low inflation had opened space for policy easing, dealers said.

 

These bets got a fillip after September CPI inflation fell to an over-eight-year low of 1.54% from 2.07% in August. Economists project October CPI inflation at less than 1%, the lowest in the current series with 2012 as the base year. This is likely to put pressure on the Monetary Policy Committee to ease rates further, though a December rate cut was fully priced in to the one-year swap rate for the past several weeks, dealers said.

 

On the global front, traders may track developments in the US after the government partially shut down in early October. 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 of 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	FRIDAY
1-year OIS	5.43%	5.44%
2-year OIS	5.36%	5.38%
5-year OIS	5.64%	5.66%
2-year MIFOR	5.82%	5.85%
5-year MIFOR	6.21%	6.25%

 

End

 

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

 

Edited by Rajeev Pai

 

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