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Informist, Wednesday, Dec. 17, 2025

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates rose sharply Wednesday, likely due to offshore traders paying fixed rate contracts, dealers said. An intraday rise in US Treasury yields also pushed up swap rates, dealers said. Some traders hit stop-losses after the five-year swap rate rose above the psychologically crucial 5.90% level, even as trade volumes were low and did not reflect activity triggered from stop-losses, dealers said. 

The one-year swap rate ended at 5.49%, the highest close since Nov. 6, against 5.47% Tuesday. The five-year swap rate ended at 5.95%, after hitting a high of 5.96%, from 5.90% Tuesday. The five-year swap rate has risen 19 bps so far this month. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 177.45 billion, up from INR 62.60 billion Tuesday. The yield on the benchmark 10-year US Treasury note was 4.18% at 1700 IST, unchanged from the same time Tuesday, but fluctuated during OIS market hours. The 10-year US yield hit 4.15% during the day but inched up again nearing the end of trade.

Swap rates rose nearing the end of trade, with the five-year swap rate hitting the crucial technical level of 5.96%. If the five-year swap rises above 5.96%-5.97%, the rate is seen rising to 6.02%, dealers said. Traders speculated that offshore investors paid fixed rate contracts tracking the rise in US yields, though dealers could not confirm whether there was an offshore flow. Some said that FPIs were also unwinding their received bets nearing the end of the calendar year. A few traders hit stop-losses, which catalysed the rise in swaps, dealers said. US Treasury yields were higher on Wednesday as investors assessed the latest US economic data and awaited the release US CPI for November, due 1900 IST Thursday.

"None of the domestic players would do such aggressive paying just before OMO right, and there's no specific data point or something which would've caused this," a dealer at a private sector bank said. "We saw a significant appreciation in rupee also, so domestic traders would not be in a position to form such a view."

The return to paying swaps from offshore traders is a surprise and concern to domestic traders, after heavy offshore paying had driven up the five-year swap rate 21 basis points till late last week. Early this week, offshore traders had switched to receiving, and fears of a further rise in swap rates had ebbed. Domestic dealers had been receiving fixed rates whenever swap rates hit the upper end of the recent trading range.

Domestic traders were receiving fixed rate contracts at market open, as US yields were lower, and the rupee rose sharply against the dollar. The local currency appreciated sharply by over a rupee against the dollar in early trade. 

"90 (5.90% on the five-year swap) was the stop-loss, so it got hit," a trader at a primary dealership said. "Morning we had seen some receiving, at 89 half, 89 three-quarter (5.8950-5.8975%). Because of currency (rupee rise), people received (fixed rates) but ultimately offshore players came and 90 (5.90%) was broken."  

OUTLOOK

On Thursday, swaps may track the overnight movement in US Treasury yields ahead of the release of US inflation data for November. US CPI is seen rising 3.1% on year in November, according to a Wall Street Journal poll. Offshore flows are likely to continue to drive movement in OIS rates amid a lack of interest rate cues on the domestic front. The five-year swap rate has risen 19 bps so far this month, largely due to offshore flows. 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. 

Swaps may also track the rupee's movement against the dollar and its impact on dollar-rupee forward premiums. Swaps may also track the movement of gilts yields after the result of the INR-500-billion open market operation auction Thursday. 

On the domestic front, after India's CPI for November was largely a "non-event" for swaps, 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 Monetary Policy Committee, dealers said. 

Traders will monitor developments around the India-US trade deal and may also track crude oil prices for cues. The one-year swap rate is seen at 5.38-5.60% and the five-year swap rate is seen at 5.78-6.02%.

End

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

Edited by Deepshikha Bhardwaj

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