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Informist, Wednesday, Nov. 12, 2025

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended tad down Wednesday due to an overnight fall in US Treasury yields, though swaps recovered from the day's low after India's October CPI inflation data disappointed some traders who had taken intraday received positions on bets of deflation in October, dealers said. 

 

The one-year swap rate ended at 5.46%, from 5.47% Tuesday. The five-year swap rate ended at 5.71%, down from 5.73% Tuesday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 202.85 billion, around one-fifth of INR 1.07 trillion on Tuesday. The yield on the 10-year benchmark US Treasury note was 4.09% at 1700 IST, down from 4.12% at the same time Tuesday. The US bond market was closed on Tuesday due to the Veterans Day holiday. US yields fell after data released Tuesday showed US firms shed more than 11,000 jobs a week through late October.

 

"Swaps were lower (at open) because of UST (US Treasury) and punting before CPI," a dealer at a private sector bank said. "Most dealers were of the view that there will be a negative (inflation) data. Dealers were hoping it would be a deflationary print, so some positioning before that."

 

Swap rates opened lower, tracking the fall in US yields. Traders also placed intraday bets in swaps by receiving fixed-rate contracts, on expectations of deflation in India for October. India's CPI inflation for October, released at 1600 IST, printed at a record low of 0.25%, from 1.44% in September. An Informist poll of 12 economists estimated headline inflation at 0.3%. Most traders' expectations were in the 0.3-0.7% range, which was priced into swaps, but some traders expected deflation, and the five-year swap rate recovered from its day's low of 5.69%. Deflation occurs when inflation turns negative, meaning prices have fallen year-on-year. If the CPI data had shown deflation in India for October, it would have been the first, and would have increased the space for policy easing by the Reserve Bank of India's Monetary Policy Committee in December, dealers said. RBI Governor Sanjay Malhotra had said at the October Monetary Policy Committee meeting that low inflation created space for policy easing. Core inflation in October rose to 4.4% from 4.3% in September, but traders were expecting the higher figure due to a sharp rise in gold prices, dealers said.

 

"I'm not sure why it's (OIS) not reacting (being paid) right now (after CPI), but if you see US (10-year yield) is also 4-5 bps down, so maybe that's why it's subdued," a dealer at a private sector bank said. "That paying will come in OIS, but right now, everyone who is stuck with their positions in gilts will get out of there and then come to OIS. And there's comfort from bonds also because 'others' (category) are buying (gilts)."

 

However, swap rates still largely remained down, as gilt prices remained higher on continued bets of the RBI purchasing gilts in the secondary market Wednesday. The 'others' segment of market participants, which includes insurance companies, provident funds and the central bank, has net bought gilts worth INR 301.30 billion till Tuesday from Nov. 3, and traders speculate that the central bank is buying bonds on-screen. The total buys could be larger since some insurance companies have sold gilts during the same period, some dealers said. The RBI is largely seen purchasing the 6.33%, 2035 gilt, with some traders speculating purchases of the 10-year benchmark 6.48%, 2035 gilt and the 15-year 6.68%, 2040 gilt as well. If the RBI's weekly data on Friday confirms purchases by the central bank in the secondary market last week, traders expect the on-screen purchases to set the stage for the announcement of open market gilt purchases through auction. If this happens, swap rates could track a fall in bond yields and the five-year swap rate could fall to 5.65%, dealers said. Traders who had hedged their purchases of 10-year gilts by paying swap rates earlier this week unwound those trades ahead of the release of inflation data, dealers said. 

 

Some corporates were receiving fixed-rate contracts in swaps, dealers said. "My view is that there were corporates who were neutralising their previous positions, they were not taking any fresh positions, they were just sitting it out, sitting out the data," a dealer at a state-owned bank said. "For everyone who was overpaid during the day, they got a soft exit because there was someone ready to receive."

 

OUTLOOK

On Thursday, swap rates are likely to track gilt and US Treasury yields at market open, dealers said. Some traders expect swaps to open higher as traders digest the CPI inflation print, and those who were expecting deflation are likely to unwind their "over-received" positions. 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. On the data front, traders await Jul-Sept GDP data, due on Nov. 28, for cues on the possibility of rate cuts by the RBI's Monetary Policy Committee, after CPI inflation data failed to increase bets of a rate cut in December. 

 

Traders will also track systemic liquidity and the overnight Mumbai Interbank Offered Rate, dealers said. Traders will also track developments in India-US trade talks and developments on the blast in Delhi on Monday. 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 5.65-5.80%.

 

	At 1700 IST	TUESDAY
1-year OIS	5.46%	5.47%
2-year OIS	5.44%	5.46%
5-year OIS	5.71%	5.73%
2-year MIFOR	5.82%	5.84%
5-year MIFOR	6.27%	6.29%

 

End

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

 

Edited by Saji George Titus

 

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