India IRS Review
Inch lower as gilt yields, dlr-rupee fwd premia recover
This story was originally published at 20:29 IST on 23 December 2025
Register to read our real-time news.Informist, Tuesday, Dec. 23, 2025
By Aaryan Khanna
NEW DELHI – Overnight indexed swap rates ended lower tracking government bond yields. A moderation in the dollar-rupee forward rates from highs also pulled down OIS rates after they had opened higher, dealers said.
The one-year swap rate ended at 5.50%, against 5.51% Monday. The five-year swap rate ended at 5.96%, down from 5.98% Monday. The latter had hit a fresh nine-month high of 6.0150% earlier in the day. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 202.55 billion, down from INR 235.75 billion Monday.
"Positioning is being unwound as traders are getting back into bonds and also receiving swaps," a dealer at a private sector bank said. "Most of the trades are on the domestic side, from what I'm hearing." The 10-year benchmark gilt yield ended at 6.63%, after hitting a high of 6.70% intraday against 6.67% Monday.
Similarly, the one-year dollar-rupee forward premium jumped to 3.25% during the day, its highest since Aug. 1, 2022. Traders speculated state-owned banks were entering buy-sell agreements as the premiums jumped, capping the premiums. The benchmark one-year dollar-rupee forward rate ended at 3.10%, from 3.06% Monday. The rise in gilt yields and dollar-rupee swap rates had been driving OIS rates higher in recent days amid lack of fresh cues on interest rates and limited activity from offshore, dealers said.
"The RBI should come up with a (dollar-rupee) buy-sell (swap auction) at this point," a dealer at a primary dealership said. "The forward points going out of control will have a negative impact on OIS rates also, but since banks seem to be supporting in the one-year and higher forwards today (Tuesday) we are seeing some receiving in the one- and two-year OIS curve also." After market hours, the RBI announced a $10 billion, three-year dollar-rupee buy-sell swap auction for Jan. 13.
OUTLOOK
OIS rates may fall Wednesday after the RBI announced INR 2 trillion of gilt buys across December and January and a three-year, $10 billion dollar-rupee buy-sell auction on Jan. 13. This will bring down government bond yields and dollar-rupee forward premia, easing OIS rates as well, dealers said.
However, the fall may be limited after the 10-year US Treasury yield jumped to 4.20% at 2000 IST from 4.15% at the end of Indian market hours, approaching levels it had last topped in September. US GDP grew 4.3% on year in Jul-Sept against 3.2% expected in a Dow Jones poll, weakening the case for the US Federal Open Market Committee to cut rates further.
The offshore activity will be closely assessed as it usually slows during the Christmas week and heading into the New Year as foreign banks and primary dealers close their accounts at the year-end or go on holiday, dealers said. Trade volumes may remain low with several traders also on leave.
Market participants expect inflows into debt instruments from foreign portfolio investors to begin in the new year and to top $25 billion in 2026 as India's fully accessible route bonds get added to Bloomberg's flagship Global Aggregate Index. This may pull down swap rates as well, dealers said.
After India's CPI for November was essentially a "non-event" for swaps, traders are 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 the financial year 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, though there are no rate-cut bets for February currently reflected in OIS rates, 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 5.42-5.55% and the five-year swap rate is seen at 5.85-6.02%.
At 1700 IST | MONDAY | |
1-year OIS | 5.50% | 5.51% |
2-year OIS | 5.58% | 5.60% |
5-year OIS | 5.96% | 5.98% |
2-year MIFOR | 6.27% | 6.25% |
5-year MIFOR | 6.63% | 6.64% |
End
US$1 = INR 89.65
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Akul Nishant Akhoury
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