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Informist, Thursday, Dec. 18, 2025

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended down Thursday, reversing some of the gains of Wednesday, as domestic traders received fixed rate contracts at levels seen lucrative, dealers said. A fall in US Treasury yields also pushed the swap rates lower, they said.

 

The one-year swap rate ended at 5.48%, against 5.49% Wednesday. The five-year swap rate ended at 5.91%, down from 5.95% Wednesday. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 258.35 billion, up from INR 177.45 billion Wednesday. The yield on the benchmark 10-year US Treasury note was 4.14% at 1700 IST, down from 4.18% at the same time Wednesday.

 

Several traders do not expect the five-year swap rate to rise above 5.96-5.97%, a level it hit Wednesday, since the level is lucrative to receive fixed rate contracts, dealers said. Offshore traders had paid fixed rates Wednesday to hedge their books before they close their books nearing the end of the calendar year, dealers said. This pushed the five-year swap rate up over 5 basis points Wednesday, but traders said that thin volumes had amplified the paying bias. Domestic traders found the rate lucrative to receive, and several traders have been playing the "buy the uptick" trade this week.

 

"It's some domestic receiving," a dealer at a primary dealership said. "The current level of 5.90% is lucrative for them to receive...there was quite a pull up earlier due to off-shore paying earlier."

 

Fall in US Treasury yields also aided the fall in swap rates, dealers said. US yields fell in midday European trade, as traders awaited US CPI inflation for November. However, domestic traders have not built significant positions ahead of the data release, due to lack of trading interest and there are no fresh cues on interest rates on the domestic front. On Wednesday, US Federal Reserve Governor Christopher Waller said interest rates are still too high for a slowing job market, hours before US President Donald Trump would interview him for the position of the next US Federal Reserve chair.

 

Swaps also tracked the movement of government bond yields. Gilt yields fell towards the end of the session, after the result of the Reserve Bank of India's INR-500-billion open market operation auction was largely better than expectations, albeit with a few disappointments. The RBI bought the entire notified amount, and set higher-than-expected cut-off prices on five of the seven bonds it had offered to buy.

 

The operation, along with the three-year dollar-rupee buy-sell swap auction the central bank conducted Tuesday, will add around INR 1.00 trillion of liquidity in the banking system by Friday, dealers said. The first leg of the settlement of the dollar-rupee buy-sell swap will take place Thursday. This liquidity infusion may limit an upward movement in swap rates, at least on the domestic front, dealers said. Traders also hope for at least one more OMO auction of at least INR 250 billion to be conducted in December itself.

 

OUTLOOK

On Friday, swaps may track the overnight movement of US Treasury yields after US inflation data for November is released. 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 due to 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 also await Bank of Japan's rate decision Friday for cues on global rate movements. The Bank of Japan is expected to raise rates to its highest level since 1995. Some offshore investors have recently taken a call to pay fixed rate contracts in markets across Asia due to current geopolitical and monetary policy conditions, dealers said.

 

On the domestic front, traders are waiting for the minutes of the RBI Monetary Policy Committee's December meeting, due Friday. Traders largely expect a neutral commentary from the rate-setting panel, with indications of liquidity measures, dealers said. After India's CPI for November was largely a "non-event" for swaps, traders are more focussed 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.

 

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 gilt yields after the result of the weekly auction Friday.

 

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%.

 

	At 1700 IST	WEDNESDAY
1-year OIS	5.48%	5.49%
2-year OIS	5.56%	5.59%
5-year OIS	5.91%	5.95%
2-year MIFOR	6.10%	6.05%
5-year MIFOR	6.52%	6.50%

 

End

 

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

 

Edited by Ashish Shirke

 

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