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Informist, Friday, Nov. 14, 2025

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended slightly higher Friday as offshore traders paid fixed rate contracts tracking a rise in US Treasury yields and some banks hedged their bond forward rate agreements, dealers said. Additionally, the Reserve Bank of India conducted a three-day variable rate reverse repo auction for INR 1.00 trillion Friday, which took traders by surprise as they had begun pricing in lower overnight money market rates due to the lack of such an auction so far this week, they said.    

The one-year swap rate ended at 5.48%, up from 5.46% Thursday. The five-year swap rate ended at 5.74%, up from 5.71% Thursday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform was INR 537.55 billion, up sharply from INR 166.30 billion Thursday. The yield on the 10-year benchmark US Treasury note was 4.12% at 1700 IST, against 4.10% at the same time Thursday.

US yields rose overnight after comments by US Federal Reserve officials dampened expectations of a rate cut in the US in December. Several Fed officials Thursday indicated a lower probability of further rate cuts, citing worries about inflation and signs of relative stability in the labour market after two interest rate cuts in the US this year. Reduced chances of a rate cut in the US are likely to have a cascading effect on global monetary policy decisions, and traders pared bets of a rate cut by the RBI's Monetary Policy Committee in December. Tracking the rise in US yields, offshore traders paid fixed rate contracts.

"Nowadays the foreign bank guys are also not active to prevent a rise in rates, they used to receive quite a lot, their year-end is coming, so Nov-Dec they are closing books," a dealer at a private-sector bank said. "Some (foreign) flow must have come today (Friday) and the VRRR shock is also there."

Back home, the RBI's announcement of a VRRR auction caused traders to unwind their received bets as the overnight Mumbai Interbank Offered Rate was set at 5.58% Friday, above the repo rate for the first time this month. The lack of the VRRR auction announcement so far in the week had caused traders to price in lower overnight borrowing rates and realign the rest of the yield curve as they saw it as an indication that the central bank was loosening its grip on holding the weighted average call money rate near the repo rate. 

"That (reaction to VRRR) we definitely saw in short-term, but in five-year there's been paying for quite a long time, I've not heard who is doing it," a dealer at another private-sector bank said. "That (the five-year swap) has approached 5.74% levels, it is the higher end of the trading range, this 5.74-5.75% level."

Swap rates also tracked the rise in bond yields Friday. Bond yields rose owing to the dull outlook on the central bank's on-screen bond purchases, which may have come to an end, dealers said. The RBI bought INR 124.70 billion worth of gilts through on-screen open market operations in the week ended Nov. 7, data from the central bank showed. Traders were expecting a figure of around INR 180 billion to INR 200 billion, but this data does not account for purchases or sales made on Nov. 7.

Moreover, the "others" segment of gilt market participants--which includes the central bank, insurance companies, and provident funds--net purchased gilts worth INR 9.21 billion Thursday, according to CCIL data. This follows another meagre figure of INR 13.80 billion Wednesday, after a healthy daily average net purchase of around INR 50 billion by this segment from Nov. 3 till Tuesday. Traders speculated that most of the purchases since Nov. 3 were by the central bank to replenish its portfolio. The RBI held INR 150 billion to INR 300 billion of the 5.15%, 2025 gilt which matured Sunday. Some banks also paid fixed rate contracts to hedge their bond forward agreements with insurance companies, dealers said. Around INR 10 billion to INR 15 billion of the 6.90%, 2065 gilt was purchased at the weekly gilts auction Friday for these agreements, dealers said.

OUTLOOK

Swaps are not traded Saturdays. Monday, swap rates are likely to track gilt and US Treasury yields at the market opening, dealers said. Some traders said swaps are likely to open higher after the quantum of gilts purchased by the RBI for the week ended Nov. 7 was less than dealers had expected. The one-year swap rate is likely to see more of an upward move than the five-year swap, as onshore traders receive fixed rate contracts whenever the five-year swap rate rises as the level is seen to be lucrative due to bets of one more cut in the repo rate, dealers said.

Traders will also track geopolitical developments, especially regarding the India-US trade deal. A few traders expect the deal to be finalised over the weekend, though most expect it by the end of the month.

On the data front, traders await Jul-Sept GDP data, due 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. India's GDP likely grew 7.2% in the September quarter, according to India Ratings and Research Pvt. Ltd.

Traders will also track systemic liquidity and the overnight Mumbai Interbank Offered Rate, dealers said. Traders may continue to trade in swaps maturing in under a year to adjust their rate-cut bets and bet on spreads between MIBOR and money market 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 5.40-5.55% and the five-year contract is seen at 5.68-5.80%.

End

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

Edited by Rajeev Pai

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