More Stories

Informist, Wednesday, Dec. 24, 2025

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended lower in thin trade Wednesday, tracking a fall in government bond yields and dollar-rupee forward premia after the Reserve Bank of India announced measures to infuse banking system liquidity. After market hours Tuesday, the RBI had announced it would buy INR 2 trillion of gilts between Monday and Jan. 22 and conduct a $10 billion dollar-rupee buy-sell swap auction Jan. 13.

 

The one-year swap rate ended at 5.46%, down from 5.50% Tuesday. The five-year swap rate ended at 5.91% against 5.96% Tuesday. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform fell to INR 121.65 billion from INR 202.55 billion Tuesday.

 

"OIS doesn't have any triggers of its own since there is no offshore activity at this time of the year," a dealer at a primary dealership said. "The forex (foreign exchange) swaps are falling, gilt yields are down, and that's what is driving things here as well."

 

The one-year dollar-rupee forward premium had risen to over-three-year highs this week before the RBI's announcement. Wednesday, the benchmark premium rate fell to 2.82% from 3.10% the previous day. The one-month dollar-rupee forward premium fell nearly 60 basis points to 5.48% Wednesday.

 

The larger-than-expected open market operations notice also led to the 10-year benchmark gilt yield falling the most in a day since Apr. 2. The yield on the 6.48%, 2035 bond fell over 9 bps to 6.54% Wednesday. Some traders said they would have preferred to enter bond-swap trades--buying bonds and paying swap rates--to profit from the spread between the two instruments declining. They held off on these bets owing to the lack of liquidity in the market.

 

Foreign banks and primary dealerships avoided placing aggressive bets ahead of the year-end, when they close their accounts. Also, several dealers are on leave during the Christmas week and ahead of the New Year. Moreover, activity in the non-deliverable OIS markets has slowed to nearly a standstill, drying up volumes in the onshore interest rate swap market as well, dealers said.

 

"There are no counterparties, so who are we going to trade with?" a dealer at a private-sector bank said. "No doubt that these levels are more reflective on where we should be and what the rate view is, but the market is very shallow to tell you any bigger stories." Dealers said the one-year swap rate, which had reflected around 40% chance of a rate hike in Oct-Dec 2026, now showed less than 5% chance of such action by the RBI's Monetary Policy Committee.

 

OUTLOOK

Money markets are shut Thursday for Christmas. OIS rates may open steady Friday after the volatility in the past few sessions, with traders likely to continue receiving fixed rates if gilt yields and dollar-rupee forward premia fall, dealers said. The RBI has 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, which may push rates lower.

 

The movement in US Treasury yields may also lend cues. Trading activity is likely to be muted as several traders are on leave in the Christmas week and ahead of the New Year. Furthermore, foreign banks and primary dealerships, as also traders offshore, have limited trading activity near the year-end, dealers said.

 

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.

 

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

 

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 5.40-5.52% and the five-year swap rate is seen at 5.85-6.00%.

 

	At 1700 IST	TUESDAY
1-year OIS	5.46%	5.50%
2-year OIS	5.54%	5.58%
5-year OIS	5.91%	5.96%
2-year MIFOR	6.15%	6.27%
5-year MIFOR	6.52%	6.63%

 

End

 

US$1 = INR 89.78

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

 

Edited by Rajeev Pai

 

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.