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Informist, Thursday, Nov. 6, 2025

By Srijita Bose

MUMBAI – Overnight indexed swap rates ended slightly higher Thursday tracking the rise in US Treasury yields, dealers said. Offshore traders likely paid fixed rates on longer-tenure swaps as they pared back rate cut expectations in the US, they said. 

The one-year swap rate ended at 5.49%, compared with 5.48% on Tuesday. The five-year swap rate ended at 5.71%, up from 5.70% on Monday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 504.20 billion, up from INR 380.35 billion Tuesday. Swaps were not traded on Wednesday as markets were closed for Guru Nanak Jayanti. 

The 10-year US Treasury yield rose to 4.16% during the day from 4.10% at 1700 IST Tuesday. Solid economic data prints supported the US Federal Reserve's caution about cutting interest rates again next month, especially given the dearth of data amid the prolonged US government shutdown. The US central bank lowered its benchmark overnight interest rate by 25 basis points to the 3.75-4.00% range last month.

Meanwhile, the US Supreme Court Wednesday raised doubts over the legality of President Donald Trump's sweeping tariffs in a case with implications for the global economy. However, US Treasury Secretary Scott Bessent, who attended the arguments on Wednesday, said that if the Supreme Court ruled against Trump, the administration would switch to other legal authorities to ensure his tariffs remain in place.

Foreign portfolio investors and traders from foreign banks paid fixed rates on the two-year and five-year OIS contracts to unwind their earlier received positions, dealers said. The rise in dollar index above the 100 mark also likely led offshore traders to pay fixed rates in OIS, they said. However, the rise in swap rates was limited as the five-year swap rate has already risen 6 basis points over the past eight sessions, they said. 

"OIS is mostly tracking global data and since US yields and dollar index rose, there was a paying bias here as well," a dealer at a primary dealership said. "Even in short-term (OIS) there was good amount of paying, I think because rupee forward premiums have risen and there was some arbitrage to be made."

Some traders also paid fixed rates on OIS to hedge their buys of government bonds, dealers said. Traders bought gilts on hopes that the Reserve Bank of India will provide support to gilts by buying gilts through open market operations, dealers said. However, most remained unsure of the fall in yields even with support from RBI as uncertainty around a trade deal between US and India has reduced hopes of a rate cut by the central bank's Monetary Policy Committee in December, they said. 

Meanwhile, some domestic traders continued to receive fixed rates in swaps as they held on to their domestic rate cuts bets, dealers said. With rise in swap rates above 5.70%, domestic traders found levels attractive to receive fixed rates, they said. 

"We have breached the 5.70% level, next technical I think is 5.75-5.80%, but if you have a rate cut view these levels are good to receive," a dealer at a private sector bank said. "But no one is going to receive aggressively because overall US yields are still on a upward trajectory."

OUTLOOK

On Friday, swap rates are likely to track movements in the US Treasury yields at open. Any sharp movement in Indian government bond yields after could also lend cues to swaps, dealers said. Traders will also track developments in India-US trade talks.

On the data front, traders await domestic CPI inflation for October, due on Nov. 12. Traders have largely priced in a low CPI print, but the impact of the Centre's cut in goods and services tax rates, which took effect on Sept. 22, is yet to be ascertained, dealers said. GDP growth data for Jul-Sept, due on Nov. 28, will also be tracked. There is no immediate domestic data scheduled 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 crude oil prices. The one-year swap rate is seen in the range of 5.38-5.52% and the five-year contract is seen at 5.55-5.74%.

End

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

Edited by Deepshikha Bhardwaj

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