More Stories

Informist, Friday, Dec. 19, 2025

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended slightly higher in thin trade as traders paid fixed rate contracts to hedge their bond forward rate agreements written for long-term investors' purchase of the 7.09%, 2074 bond at the weekly gilt auction, dealers said. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 85.70 billion, over a 65?ll from INR 258.35 billion Thursday. A rise in Asian rates after the Bank of Japan hiked interest rates also pushed up swap rates, dealers said.  

 

The one-year swap rate ended at 5.48%, flat against Thursday. The five-year swap rate ended at 5.95%, up from 5.91% Thursday. The yield on the benchmark 10-year US Treasury note, which fell to a low of 4.12% Friday,  was 4.14% at 1700 IST, the same as at the same time Thursday.

 

At the weekly gilt auction Friday, long-term investors such as pension funds and insurance companies swept off the INR-120-billion supply of the 7.09%, 2074 bond. The RBI accepted 14 out of 139 bids for the 7.09%, 2074 bond at the auction, at a cut-off price of INR 96.30, above the estimate of INR 95.92 in an Informist poll. Dealers said around INR 30 billion to INR 40 billion of the bond was purchased for bond forward rate agreements.

 

Traders who entered into these agreements with insurers hedged the contracts by paying fixed-rate contracts in swaps maturing in two to five years, dealers said. Dealers also speculated that traders were hedging their bond forward trades by paying the seven-year swap rate. Traders with specific liability tenures were matching risk by paying the seven-year swap, some dealers said. The seven-year swap rate ended 2 basis points higher Friday. The cumulative volume in the swap has been nearly INR 4.00 billion since Wednesday.  

 

"In the last week, it was offshore paying, and coming to this week, some FRA (forward rate agreements) demand has pushed the paying bias," a trader at a primary dealership said. "Yesterday (Thursday) and today (Friday) also. The paying bias from 2- to 7-year is related to FRA only."

 

A rise in rates across Asian markets also pushed up swap rates, dealers said. The Bank of Japan Friday hiked rates to 0.75%, its highest level since 1995, following which the 10-year benchmark Japanese government bond yield rose 4 basis points to its highest level since 1999. A rise in dollar-rupee forward premiums also led traders to receive forward rates and pay fixed rates in swaps, dealers said. The one-year dollar-rupee forward premium hit an over three-year high Friday.

 

"Direction of policy is indicating to the market that the US will cut more than is being priced in and India will cut less than is being priced in, so people paid here and received SOFR (Secured Overnight Financing Rate), especially with forwards punts being taken out," a dealer at a state-owned bank said. "Three-year forwards are historically elevated, and are good levels to receive, since RBI in spot (rupee spot market) has indicated it will not let currency fall too much. Receive MIFOR (Mumbai Interbank Forward Offer Rate) and pay OIS."

 

OUTLOOK

Swaps are not traded on Saturdays. On Monday, swaps may track movements in US Treasury and gilt yields due to the lack of other significant triggers next week. Traders will also assess the minutes of the RBI Monetary Policy Committee's December meeting, released post-market hours Friday. Swaps may also track the rupee's movement against the dollar and its impact on forward premiums. 

 

As the year nears its end and the Christmas holiday season begins, trade volumes may remain low, with several traders likely on leave, dealers said. Offshore activity will decline during the Christmas week and heading into the New Year as foreign banks and portfolio investors close their accounts at the year-end or go on holiday, dealers said.

 

This month, some offshore investors have taken calls to pay fixed-rate contracts in markets across Asia amid current geopolitical and monetary policy conditions, dealers said. However, in January, foreign investors and banks may be more active and look to receive fixed-rate contracts. Bond yields may also fall next month, as traders expect the RBI to announce additional open market purchases of gilts. Traders also expect Indian government bonds to be included in Bloomberg's flagship Global Aggregate Index in September, with the announcement expected in January. Market participants expect inflows from foreign portfolio investors to begin in the new year and to total $25 billion in 2026.

 

After India's CPI for November was essentially a "non-event" for swaps, traders are now focused on the CPI prints January onwards, with the RBI projecting retail inflation to average 2.9% in the March quarter. India's advance estimate on GDP 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%.

 

	At 1700 IST	THURSDAY
1-year OIS	5.48%	5.48%
2-year OIS	5.58%	5.56%
5-year OIS	5.95%	5.91%
2-year MIFOR	6.14%	6.10%
5-year MIFOR	6.56%	6.52%

 

End

 

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

 

Edited by Saji George Titus

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2025. All rights reserved.