India IRS Review
Tad dn on offshore flows; receiving before $5 bln FX swap
This story was originally published at 20:24 IST on 15 December 2025
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By Cassandra Carvalho
MUMBAI – Overnight indexed swap rates ended a tad lower Monday as offshore traders received fixed rates, dealers said. Traders speculated that bond swap trades were being unwound as bond prices were largely lower during the day and swap rates had a receiving bias. The movement in the spot and forward foreign exchange markets ahead of the Reserve Bank of India's $5 billion dollar-rupee buy-sell swap auction Tuesday also impacted the movement of swap rates, dealers said.
The one-year swap rate ended at 5.46%, flat against Friday. The five-year swap rate ended at 5.90%, down from 5.92% at Friday's close. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 290.20 billion, slightly higher than INR 266.25 billion Friday. The yield on the benchmark 10-year US Treasury note was 4.17% at 1700 IST, from 4.16% at the same time Friday.
"That paying bias has sort of reduced. Offshore has shifted back to receiving, so that's put a cap on the upside," a dealer at a private sector bank said. "The levels are good and as long as we don't cross 5.95% (on the five-year swap), it will be 'receive on the uptick'."
Earlier this month, heavy paying from offshore traders had led to traders hitting stop losses, which triggered a surge in swap rates. However, offshore traders switched to receiving fixed rate contracts late last week, limiting an upward move in swaps, dealers said. Some domestic traders also likely unwound their bond swap trades by selling gilts and receiving fixed rate contracts, dealers speculated.
A rise in dollar/rupee forward premiums also influenced swap rates, dealers said. The one-year dollar-rupee forward premium surged to its highest level in over 11 months Monday as banks bought dollars for forward delivery on behalf of importers who feared the Indian currency could depreciate further after it fell to a record low of 90.7900 a dollar, dealers said. Traders largely dismissed the rise in money market rates Monday, as it is seen brief, due to injection of liquidity through the RBI's $5 billion dollar/rupee buy/sell swap auction Tuesday, and open market operation auction of INR 500 billion Thursday, dealers said. Ahead of the RBI's $5 billion dollar/rupee buy/sell swap, traders played on spreads between money market rates, OIS rates and forward premiums, dealers said.
"Auction would be happening tomorrow (Tuesday), the paying premiums would be on the lower side right," a dealer at a state-owned bank said. "Participants would like to pay as less premium as possible and we saw considerable receiving in OIS today (Monday)."
OUTLOOK
On Tuesday, swaps may track the overnight movement in US Treasury yields and the rupee's movement against the dollar. The domestic unit fell to a record low of 90.79 a dollar intraday Monday. Traders will also track the result of the $5 billion dollar/rupee buy/sell swap auction, dealers said.
Offshore flows are likely to continue to drive movement in OIS rates amid lack of interest rate cues on the domestic front. Activity may continue to hold up this week but will decline in the Christmas week and heading into the new year as offshore traders close their accounts at the year-end or go on holiday, dealers said.
Traders are more focused on the CPI prints January onwards, with the RBI projecting retail inflation to average 0.6% in the December quarter. India's GDP estimate for 2025-26 (Apr-Mar) in the first week of January may also be crucial for traders to take bets on further repo rate cuts by the MPC, dealers said.
Traders will monitor developments in the India-US trade deal and may also track crude oil prices for cues. The one-year swap rate is seen at 5.40-5.55% and the five-year swap rate is seen at 5.78-6.02%.
At 1700 IST | FRIDAY | |
1-year OIS | 5.46% | 5.46% |
2-year OIS | 5.54% | 5.56% |
5-year OIS | 5.90% | 5.92% |
2-year MIFOR | 6.07% | 6.10% |
5-year MIFOR | 6.52% | 6.54% |
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Akul Nishant Akhoury
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