India IRS Review
Steady amid lack of clarity on domestic rate trajectory
This story was originally published at 19:00 IST on 28 October 2025
Register to read our real-time news.Informist, Tuesday, Oct. 28, 2025
By Srijita Bose
MUMBAI – Overnight indexed swap rates ended steady amid lack of clarity on a trade deal between US and India, dealers said. Though some longer-tenure contracts were down slightly as US Treasury yields fell, swaps recovered the fall as some traders unwound their earlier received bets due to uncertainty around domestic rate cuts, they said.
The one-year swap rate ended at 5.47%, flat against Monday. The five-year swap rate ended at 5.66%, flat against Monday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 463.05 billion, sharply up from INR 285 billion on Monday.
Trade volumes of contracts maturing in less than a year rose, with INR 245 billion traded in the one-month OIS, the most in any OIS tenure Tuesday. Traders chose to pay fixed rates on the one-month swap to unwind some of their earlier bets on a rate cut by the Reserve Bank of India's Monetary Policy Committee in its December policy, dealers said.
Tight liquidity conditions also kept the overnight Mumbai Interbank Offered Rate – the floating rate in an OIS contract – above the repo rate at 5.64%. As per the RBI's latest data, the central bank's net injection into the banking system – a proxy for systemic liquidity deficit – stood at INR 208.62 billion Monday, against a net absorption of INR 275.48 billion Sunday. Some dealers said the RBI's intervention in the foreign exchange spot market through dollar sales also likely led to a fall in rupee liquidity. This also led traders to pay fixed rates in shorter-tenure swaps, dealers said. However, others who continued to bet on a rate cut in December received fixed rates, and swaps across tenures ended steady Tuesday.
"People don't want to take fresh positions right now since the rate view is not certain, but you could still go for less than a year because your exposure is less," a dealer at a primary dealership said. "There are still people who are on the camp of two rate cuts (by the Monetary Policy Committee) so some spread play could still be made."
Meanwhile, the yield on the benchmark 10-year US Treasury note fell below 4% overnight. The yield on the 10-year US Treasury note fell to 3.97% during the day, down from 4.03% at 1700 IST Monday, ahead of the US Federal Open Market Committee's rate decision late Wednesday.
However, uncertainty over the timeline and likelihood of a US-India trade deal continued to weigh on swap rates, dealers said. Some offshore traders likely received fixed rates in longer-tenure OIS in early trade while buying Indian government bonds as they found the spread over US yields attractive, with rupee expected to appreciate if a trade deal between the US and India fructifies, they said.
Traders await the US FOMC's decision late on Wednesday. Fed fund futures are pricing in a 25 basis points cut each at the FOMC's October and December meetings, hopes of which were cemented by a slightly lower-than-expected US CPI print for September. Traders largely expect the US Federal Reserve to also announce an end to its balance-sheet reduction on Wednesday. If the FOMC signals further rate cuts post December on Wednesday, the 10-year US yield could fall to 3.85%, dealers said.
OUTLOOK
On Wednesday, they may track the movement of US Treasury yields. Investors await the US Federal Reserve's monetary policy decisions late Wednesday. The Fed is expected to cut rates by 25 bps. 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%.
At 1700 IST | MONDAY | |
1-year OIS | 5.47% | 5.47% |
2-year OIS | 5.41% | 5.42% |
5-year OIS | 5.66% | 5.66% |
2-year MIFOR | 5.80% | 5.82% |
5-year MIFOR | 6.24% | 6.24% |
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Deepshikha Bhardwaj
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