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Informist, Thursday, Dec. 11, 2025

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended slightly lower Thursday, tracking an overnight fall in US Treasury yields after the US Federal Open Market Committee cut the federal funds target range by 25 basis points for the third straight meeting, dealers said. A fall in government bond yields also helped lower swap rates. Volumes were thin and swaps were off the day's low because of offshore traders paying fixed rate contracts in minor quantums, dealers said. 

The one-year swap rate ended at 5.47%, against 5.48% Wednesday. The five-year swap rate ended at 5.92%, down from 5.97% the previous session, its highest closing level since Mar. 13. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 239.05 billion, down from INR 371.50 billion Wednesday.

The US FOMC cut interest rates by 25 bps to 3.50-3.75%. The vote was divided: US Federal Reserve Governor Stephen Miran was in favour of a 50-bp rate cut while members Austan Goolsbee and Jeffrey Schmid favoured keeping the policy rate unchanged. Fed Chair Jerome Powell voted with the majority. Subsequently, the yield on the benchmark 10-year US Treasury note fell to 4.13% at 1700 IST, from 4.20% at the same time Wednesday. However, offshore investors continued to pay fixed rate contracts in thin trade on the view that there will be no further rate cuts in India after the Reserve Bank of India's Monetary Policy Committee cut the repo rate by 25 bps to 5.25% Friday. So far, the panel has cut the repo rate by 125 bps this calendar year. A rise in swap rates across other Asian economies at the end of trade also led to some paying bias in Indian swaps, dealers said. 

"I think we (swaps) had a decent response to FOMC and US yields," a dealer at a state-owned bank said. "We didn't outperform. Had it not been for that slight paying bias, we could've fallen to 88-89 (5.88-5.89% on the five-year swap rate) also, but we were stuck at 91-92 (5.91-5.92%) levels."

Some dealers do not expect swaps to reverse the sharp rise seen this week in the near term as further rate cuts are not expected. Swap rates may move in a narrow range until fresh triggers. Later Thursday, a fall in gilt yields aided the fall in swap rates. The erstwhile 10-year benchmark 6.33%, 2035 gilt yield fell over 5 bps on bets that the RBI would choose to buy the bond at next week's open market operations auction, after cut-off prices at the OMO auction Thursday were better than expectations.  

"OIS is at a very crucial zone, if five-year crosses 5.97%, there'll be more pain, more paying, if it falls below 5.90% there will be receiving, but the receiving side is much less than the paying bias," a trader at a primary dealership said. "The one-year OIS is still discounting a (rate) hike down the line."

OUTLOOK

On Friday, at the opening, swaps will track the overnight movement in US Treasury yields after the release of weekly jobless claims data. The rupee's movement in early trade will also lend cues, dealers said. Swaps may also track the movement of bond yields. Offshore flows are likely to continue to drive movement in OIS rates amid a lack of interest rate cues on the domestic front after Friday's repo rate cut.

Traders may refrain from aggressive bets owing to CPI inflation data for November, due 1600 IST. India's CPI inflation is expected to rise to 0.7% in November from a record low of 0.25% in October, mainly as the statistical effect of a favourable base begins fading away, according to an Informist poll of 17 economists. Traders have priced in this estimate and swaps may only react--on the upside--if CPI inflation is 1.0% or higher. Otherwise, the data may not lend significant cues as the bar for a domestic rate cut in February remains high, dealers said. However, traders are more focused on the CPI prints from January onwards, with the RBI projecting retail inflation to average 0.6% in the December quarter. Another cut in the repo rate is seen to be unlikely at this stage unless India's GDP growth slumps, dealers said.

Traders will monitor developments in the India-US trade deal and may also track crude oil prices for cues. Commerce Minister Piyush Goyal Thursday said the recent visit to India from US officials was not for trade deal talks. The one-year swap rate is seen at 5.40-5.55% and the five-year swap rate is seen at 5.85-6.02%.

End

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

Edited by Rajeev Pai

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