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Informist, Wednesday, Dec. 3, 2025

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended slightly higher Wednesday, tracking a rise in government bond yields, dealers said. Ebbing hopes of a rate cut by the Reserve Bank of India's Monetary Policy Committee this week also pushed rates up, dealers said.

The one-year swap rate ended at 5.48%, unchanged from the previous session. The five-year swap rate ended at 5.82% against 5.80% Tuesday. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform fell to INR 425.60 billion from INR 460.25 billion Tuesday. The yield on the benchmark 10-year US Treasury note at 1700 IST was 4.08%, against 4.10% at the same time Tuesday. Traders largely dismissed the move in US Treasury yields, as the prime focus for now is the RBI's rate decision Friday, dealers said.

 

In spite of surplus liquidity in the banking system, short-term swap rates--which are sensitive to overnight borrowing rates as well as interest rate moves--rose slightly as traders unwound bets of a rate cut Friday. Bets of a rate cut, or some support from the central bank, had risen Tuesday on speculation of the RBI buying gilts onscreen Tuesday. Speculation about heavy purchases by the RBI had pulled down the yield on the 6.33%, 2035 bond by 6 basis points, the most in a day in over two months.

 

After market hours Tuesday, data from CCIL dashed those hopes as the "others" segment of gilt market participants, which comprises the central bank, insurers, and provident funds, had net bought gilts worth less than INR 1 billion in the secondary market on the day. Subsequently, bond yields rose Wednesday with swap rates tracking the rise. The one-year swap rate currently prices in a 15% chance of a 25-basis-point rate cut by the RBI Friday, according to dealers. The rate-setting panel's three-day meeting started Wednesday. Some offshore traders also paid fixed rate contracts, dealers said.  

 

"OIS seems to be holding at this level of 81 (5.81% on the five-year swap). Some paying is coming in at 80-81 (5.80-5.81%)," a dealer at a private-sector bank said. "Short-term OIS rising is more to do with people paring down their rate-cut bets. Right now, in the lead-up to the policy, if a cut is unlikely, short-term is rate-driven, so people are unwinding (their fixed rate contracts)."

 

However, a rise in swap rates is seen capped at 5.52% on the one-year swap and 5.83% on the five-year swap due to expectations of at least one rate cut of 25 bps in the current rate-cut cycle and support from the central bank, likely through open market operation auctions to purchase gilts, dealers said. Recently, hedging activity from corporate houses has also lent an upside bias to swap rates, dealers said. 

 

OUTLOOK

Swap rates are likely to open steady Thursday on caution ahead of the key Monetary Policy Committee outcome Friday. Traders have largely priced in 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.

 

The overnight movement in US Treasury yields may also lend cues, though the impact of the global cue may be limited ahead of the key domestic event, dealers said. Investors also await the delayed US Personal Consumption Expenditures Price Index data for September Friday. Traders will look to the US Federal Open Market Committee's policy decision next week, with some saying the RBI may avoid a rate cut this week and decide on it in February after seeing the FOMC outcome. Traders also await news on the next US Federal Reserve chair appointee, as current Chair Jerome Powell's term ends in May. US President Donald Trump has said he has decided on his pick for the seat and made it clear he expects the new 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 breakthrough yet, dealers said the continued 50% tariff on India's exports to the US could prompt the RBI to ease monetary policy.

 

The rupee's movement against the dollar is also being closely tracked. Some traders fear the RBI may avoid cutting rates amid the rupee's recent weakness. The domestic currency fell to a record low of 90.29 a dollar Wednesday before closing at 90.19 a dollar, also a record.

 

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	TUESDAY
1-year OIS	5.48%	5.48%
2-year OIS	5.52%	5.50%
5-year OIS	5.82%	5.80%
2-year MIFOR	6.02%	5.93%
5-year MIFOR	6.49%	6.42%

 

End

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

 

Edited by Rajeev Pai

 

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