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Informist, Monday, Oct. 27, 2025

By Srijita Bose

MUMBAI – Most overnight indexed swap rates ended higher Monday as traders who had placed bets earlier on the Reserve Bank of India's Monetary Policy Committee cutting the repo rate at its December meeting outcome, unwound them due to the uncertainty around a trade deal between India and the US, dealers said. However, amid a lack of trading volume in the government bond market, some traders chose to receive longer-tenure swaps as they found levels attractive, limiting the rise in swap rates, they said.

The one-year swap rate closed at 5.47%, up from 5.46% Friday. The five-year swap closed at 5.66%, up from 5.65% Friday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 285 billion, down from INR 360.65 billion on Friday.

"China is on the verge of reaching a trade deal and we could be next," a dealer at a primary dealership said. "So people are a little wary at these levels because rates could go either way and the view on (domestic interest) rates is not clear."

On the trade front, External Affairs Minister S. Jaishankar Monday met US Secretary of State Marco Rubio in Kuala Lumpur. On Sunday, Rubio said a strategic relationship between the US and Pakistan will not be at the expense of ties with India. 

A trade deal could reduce chances of a rate cut by the RBI's rate-setting panel as growth is expected to pick up if the US reduces the 50% tariffs on India, dealers said. As traders returned to their desks after an extended holiday last week for Diwali, they had their first opportunity to react to the latest developments on the trade front and unwound bets they had received earlier on a rate cut, dealers said. 

The 10-year benchmark US yield rose to 4.05% during the day from 4.01% at 1700 IST Friday. This initially led traders to pay fixed rates in swaps, dealers said. The rise in overnight Mumbai Interbank Offered rate – the floating rate in an OIS contract – also led traders to pay fixed rates, especially in contracts maturing in less than a year, they said. The overnight MIBOR rate rose to 5.65% from 5.52% on Friday. 

However, some traders are still largely expecting a rate cut by the Monetary Policy Committee in December, even if a trade deal comes, which is why current levels of 5.65-5.70% on the five-year swap were seen as lucrative to receive, dealers said. Moreover, traders chose to take bets on a rate cut in swaps rather than gilts due to uncertainty around the trade deal, they said. 

"If I am in the camp of a rate cut, then I would rather take a punt in OIS rather than going for gilts right now," a dealer at a private sector bank said. "The risk is lesser (in OIS) and overall rates have also risen from lows."

OUTLOOK

On Tuesday, they may track the movement of US Treasury yields. Investors await the US Federal Reserve's monetary policy decisions this week. The Fed is expected to cut rates by 25 basis points. Traders will also track developments in India-US trade talks.

There is no immediate data scheduled on the domestic front that is likely to have a significant impact on swap rates, dealers said. Swaps may also track the rupee's movement against the dollar and of crude oil prices. The one-year swap rate is seen in the range of 5.38-5.52% and the five-year contract at 5.55-5.74%.

End

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

Edited by Saji George Titus

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