India IRS Review
OIS rate curve steepens as liquidity eases, US ylds rise
This story was originally published at 19:22 IST on 10 November 2025
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By Cassandra Carvalho
MUMBAI – Overnight indexed swap rates ended mixed, with swaps maturing in more than one year rising on tracking a rise in US Treasury yields, while short-term swap rates fell as the surplus liquidity in the banking system was at a near-two-month high, dealers said. Traders also paid fixed rate contracts in the five-year swap rate to hedge their purchases in the 6.33%, 2035 and 6.48%, 2035 gilts.
The one-year swap rate ended at 5.47%, down from 5.49% Friday. The five-year swap rate ended at 5.72%, hitting a high of 5.74% intraday, from 5.71% Friday. Swaps are not traded on Saturdays. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 384.85 billion, down from INR 534.50 billion Friday. The six-month swap rate saw the highest volume across tenures, at INR 80.65 billion, up from INR 56.50 billion Friday. The yield on the benchmark 10-year US Treasury note rose to 4.13% at 1700 IST, from 4.10% at the same time Friday.
Swap rates largely opened higher tracking a rise in US yields. Further, government bond prices opened higher on bets of the Reserve Bank of India purchasing gilts onscreen to pull down bond yields, and onshore traders hedged their bond purchases by paying fixed rates in swaps, dealers said. However, nearing the end of trade, longer-term swap rates gave up gains on likely receiving interest from offshore players, dealers said.
"There's no proper view in the market. It seems like RBI is only holding up the market, if RBI pulls out their hand, we will fall (in price terms) to 53-54 (6.53-6.54% yield on the 10-year 6.33%, 2035 gilt)," a dealer at a private sector bank said. "That's why people are doing bond swaps because there is not a clear view on when they (RBI) will pull out their hands."
Some onshore traders also received fixed rate contracts since in absolute terms, levels were lucrative to receive, since some bets of a rate cut by the RBI's Monetary Policy Committee in December persist, dealers said. In the shorter-end of the curve, rates tracked a fall in the overnight Mumbai Interbank Offered Rate to 5.39% from 5.44% Friday, as the surplus liquidity in the banking system rose to its highest in nearly two months. The central bank's net absorption from the banking system – a proxy for liquidity surplus – was INR 2.43 trillion Sunday, up from INR 2.41 trillion Saturday. This is the highest liquidity surplus since Sept. 14. As money market rates eased below the Standing Deposit Facility rate, some traders took comfort from the fact that the RBI has not yet announced a variable rate reverse repo auction to drain excess liquidity, while the uncertainty of it kept traders on edge. Traders played on spreads between the Mumbai Interbank Offered Rate and rupee forward rates, dealers said.
"People are adjusting (the rate curve) to the fall in overnight rates since the RBI has not announced a VRRR yet," a dealer at another private sector bank said. However, short-term swap rates were extremely volatile, dealers said, and some traders avoided trades in these tenures amid uncertainty on rate cuts and the likelihood of a India-US trade deal.
Traders now await domestic CPI inflation for October, due Wednesday, for cues on the possibility of a policy rate cut by the RBI's MPC in December. CPI inflation is projected to fall to a record low of 0.3% in October, due to the statistical effect of a high base, lower food prices, and reduction in goods and services tax rates, according to an Informist poll of 12 economists. At 0.3%, this would be the lowest CPI inflation print in the current CPI series, which has data since 2014. Traders largely expect headline inflation in the range of 0.3-0.7%, but if within expectations or lower, the print could lend positive sentiment to traders, since RBI Governor Sanjay Malhotra said at the October Monetary Policy Committee meeting outcome that low inflation created space for policy easing. A few traders also expect deflation in October.
OUTLOOK
On Tuesday, swap rates are likely to track the movement of gilt yields and US Treasury yields, dealers said. Traders will also track data from the Clearing Corp. of India on segment-wise daily purchases and sales of government bonds for any indication of central bank onscreen purchases, dealers said. Traders will also track the systemic liquidity and subsequently, the overnight Mumbai Interbank Offered Rate, dealers said. Traders will also track developments in India-US trade talks.
Nearing the end of trade Tuesday, traders may avoid aggressive positions ahead of domestic CPI-based inflation data for October, due Wednesday. Traders have largely priced in a low CPI print. GDP growth data for Jul-Sept, due on Nov. 28, will also be tracked.
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 5.40-5.55% and the five-year contract is seen at 5.68-5.80%.
At 1700 IST | FRIDAY | |
1-year OIS | 5.47% | 5.49% |
2-year OIS | 5.46% | 5.45% |
5-year OIS | 5.72% | 5.71% |
2-year MIFOR | 5.82% | 5.79% |
5-year MIFOR | 6.27% | 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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