India IRS Review
Inch lower on fall in US yields; Dec rate cut bets subdued
This story was originally published at 20:02 IST on 18 November 2025
Register to read our real-time news.Informist, Tuesday, Nov. 18, 2025
By Aaryan Khanna
NEW DELHI – Overnight indexed swap rates inched lower Tuesday tracking an intraday fall in US Treasury yields. However, bets on a December rate cut by the Reserve Bank of India's Monetary Policy Committee were subdued and not a majority view, dealers said.
The one-year swap rate ended at 5.46%, against 5.47% Monday. The five-year swap rate ended at 5.74%, down from 5.76% Monday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform rose sharply to INR 530.05 billion from INR 297.40 billion Monday.
The 10-year US Treasury note eased to 4.11% at the end of Indian market hours from a high of 4.15% Tuesday, and down from 4.13% at 1700 IST Monday, ahead of key data this week. The US Bureau of Labor Statistics will release non-farm payrolls data for September Thursday, delayed by over six weeks because of the US government's record-breaking shutdown that ended last week. The government data is likely to show weakness in job growth, similar to private-sector estimates, and may put pressure on the US Federal Open Market Committee to cut its policy rate in its December meeting. Fed funds futures are pricing in a 50% change of a 25-basis-point rate cut in December, up from 42% a day ago, according to the CME's FedWatch tool.
"Things are mostly stable if you're only looking at India, there was nothing fresh," a dealer at a foreign bank said. "There is some receiving because US yields are down, otherwise some traders are scared that US yields (the 10-year US yield) will go up to 4.25% soon."
Traders remain divided on whether the rate-setting panel of the RBI will cut rates at its upcoming December meeting despite inflation having fallen to a record low in October. The panel had cut the policy rate by 100 basis points to 5.50% between February and June, and traders said it may have limited room to cut rates further as the uncertainty of the impact on GDP growth from US tariffs remains. The one-year swap rate is currently pricing in a less than 40% chance of a repo rate cut of 25 bps in December, dealers said.
Traders are also of the view that India's widening trade gap and corresponding pressure on the currency may also deter monetary policy easing. India's merchandise trade deficit rose to a record high of $41.68 billion as imports hit an all-time high. Some traders are of the view that the RBI would not want to weaken the rupee further by easing monetary policy, which is typically detrimental to the local currency. A rate cut after the December meeting, in February, is unlikely as CPI inflation will rise from the current record low levels, dealers said.
"The main pressure on rates is because of foreign exchange, since now the RBI can't cut rates because of the rupee," a dealer at a primary dealership said. "Otherwise, there is a chance that the one-year outperforms closer to the policy if there are signs of a rate cut coming." Traders await the release of September quarter GDP data on Nov. 28 to firm up their bets on what the domestic monetary policy review would bring, dealers said.
OUTLOOK
On Wednesday, swap rates are likely to track government bonds and US Treasury yields when the market opens, dealers said. There are no domestic cues scheduled on the interest rate front overnight, which may limit the movement in rates.
Offshore traders may continue unwinding their received fixed rate positions, dealers said. Meanwhile, corporate houses are likely to receive swap rates of up to two years, as has been seen since last week. This is likely because a large corporate house is switching its interest rate bets to the onshore market from derivative instruments in the non-deliverable rupee.
Traders will also track geopolitical developments, especially regarding the India-US trade deal. Most traders expect more clarity on this front by the month-end. By that time, GDP data for the September quarter will also be out. India's GDP likely grew 7.5% in the September quarter, above the RBI's forecast of 7.0%, according to State Bank of India research.
Traders will also track systemic liquidity and the overnight MIBOR, 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 a range of 5.40-5.55% and the five-year contract is seen at 5.68-5.80%.
At 1700 IST | MONDAY | |
1-year OIS | 5.46% | 5.47% |
2-year OIS | 5.45% | 5.47% |
5-year OIS | 5.74% | 5.76% |
2-year MIFOR | 5.84% | 5.84% |
5-year MIFOR | 6.31% | 6.31% |
End
US$1 = INR 88.61
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Ashish Shirke
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