More Stories

Informist, Tuesday, Dec. 2, 2025

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates reversed an earlier rise and ended lower Tuesday, tracking a sharp fall in government bond yields, dealers said. Swap rates had risen earlier due to a rise in US Treasury yields overnight, as well as ebbing hopes of a rate cut by the Reserve Bank of India's Monetary Policy Committee this week.

The one-year swap rate ended at 5.48% against 5.49% Monday. At 5.48%, the one-year swap rate is over 7 basis points higher than last week's lows. The five-year swap rate ended at 5.80% against 5.81% in the previous session, after hitting 5.83% intraday. The total notional trade volume on Clearing Corp. of India's derivatives trading platform fell to INR 460.25 billion from INR 558.85 billion in the previous session. The yield on the benchmark 10-year US Treasury note was 4.10% at 1700 IST, after touching a high of 4.11% overnight, compared with 4.05% at 1700 IST on Monday. US yields rose, tracking a rise in Japanese and Eurozone government bond yields, after Bank of Japan Governor Kazuo Ueda indicated a possible rate hike.

 

Dealers said traders unwound their paid fixed-rate positions in swaps as gilt yields slumped in the latter half of trade, with speculation that the RBI was buying bonds in the secondary market to cap yields before the MPC three-day meeting beginning on Wednesday. The yield on the most-traded 6.33%, 2035 gilt fell nearly 6 basis points Tuesday, the most in two months. The fall in swaps was limited as traders initiated bond-swap trades, betting that gilt yields may fall due to the RBI's open market operations, as the outlook on interest rates remains clouded, dealers said.

 

"Hedges are being unwound as traders are cutting shorts (short sales) in G-sec," a dealer at a private-sector bank said. "The move is not related to rate expectations, simply that the underlying market (government bonds) has moved."

 

Hopes of an MPC rate cut on Friday remained a minority view, dealers said. The one-year OIS rate only reflects a 20-25% chance of the repo rate being cut to 5.25% from the current 5.50?ter data Friday showed red-hot economic growth. India's GDP growth rose to a six-quarter high of 8.2% in the September quarter. Traders had expected a reading as high as 7.5%, above the median 7.2% in an Informist poll of economists. The RBI's forecast for the September quarter GDP growth was 7.0% but with the GDP print beating all forecasts, traders said the pressure on the MPC to ease rates had reduced.

 

Instead, the central bank would likely keep liquidity conditions easy by infusing liquidity through operations such as OMOs or dollar/rupee buy/sell swaps. Short-term swap rates maturing up to three months were now factoring in the overnight Mumbai Interbank Outright Rate – the floating leg of the OIS contract – to remain around 5.40%. 

 

OUTLOOK

Swap rates may inch lower Wednesday as the Reserve Bank of India's Monetary Policy Committee begins its three-day meeting. After speculation of the RBI purchasing gilts on-screen on Tuesday, traders may receive fixed-rate contracts on expectations of support from the central bank to pull down bond yields, dealers said. Traders have largely priced in a status quo on rates at the policy meeting after higher than expected GDP growth in the September quarter, but the five-year swap rate is unlikely to rise above the psychologically crucial 5.83% level on hopes of RBI support, dealers said.

 

"At 78-79 (5.78-5.79% on the five-year swap rate), a significant amount of stop-loss got triggered, but I think the next level is going to be this 83 (5.83%) from where it reversed last time," a dealer at another private sector bank said. "But I don't think that level will get breached before the policy."

 

The overnight movement in US Treasury yields may also lend cues, dealers said. Investors await the delayed US Personal Consumption Expenditures Price Index data for September on Friday. Overnight, a speech by US Federal Reserve Chair Jerome Powell did not address monetary policy or the economic outlook due to the official blackout period before the US Federal Open Market Committee's policy meeting next week. Traders will look to the FOMC's decision later in the month, with some saying that the MPC could avoid a rate cut this week, and take a decision in February only after the FOMC's outcome. Traders also await news on the next US Federal Reserve chair appointee, as current chair Powell's term ends in May. US President Donald Trump said he has decided on his pick for the next Fed chair, after making clear he expects the appointee to cut interest rates.

 

Traders will also track geopolitical developments, especially those related to the India-US trade deal. Most traders expect more clarity on this front by the month-end. With no major breakthroughs so far, dealers said a continued 50% tariff on India's exports to the US may also prompt the RBI to ease monetary policy.

 

The rupee's movement against the dollar is also closely tracked, as some traders fear the RBI's rate-setting panel may avoid cutting rates amid the rupee's recent weakness. The domestic currency is inevitably seen falling to a record low of 90.00 a dollar unless a trade deal is struck.

 

Traders will also track the overnight Mumbai Interbank Outright Rate and crude oil prices for cues, dealers said. The one-year swap rate is seen at 5.38-5.52% and the five-year rate is seen at 5.68-5.83%.

 

	At 1700 IST	MONDAY
1-year OIS	5.48%	5.49%
2-year OIS	5.50%	5.51%
5-year OIS	5.80%	5.81%
2-year MIFOR	5.93%	5.89%
5-year MIFOR	6.42%	6.39%

 

End

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

 

With inputs from Cassandra Carvalho

Edited by Saji George Titus

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2025. All rights reserved.