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Informist, Friday, Dec. 26, 2025

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates inched up tracking government bond yields and because money market rates remained sticky above the Reserve Bank of India's Marginal Standing Facility rate for the third straight day, dealers said Friday. Trade volumes were thin as expected due to a lack of participation from foreign banks and offshore traders between Christmas and the New Year.

 

The one-year swap rate ended at 5.47%, from 5.46% Wednesday. The five-year swap rate ended at 5.93% against 5.91% Wednesday. Money markets were shut Thursday for Christmas. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform fell to a paltry INR 93.60 billion from INR 121.65 billion Wednesday.

 

Government bond yields were steady in early trade but rose after the result of the weekly gilt auction. Poor demand from state-owned banks led to higher-than-expected cut-off yields on bonds at the INR-320-billion auction, pushing up yields in the secondary market as well. The 10-year benchmark gilt yield rose to 6.56% from 6.54% Wednesday, a day after falling 9 basis points.

 

Interest rate bets had taken a backseat amid a lack of fresh cues on both the domestic and global fronts, with foreign banks and offshore participants also closing their accounts at the year-end. Several traders were also on holiday between Christmas and the weekend, further reducing the scope for market activity, dealers said. 

 

"There's actually no activity in OIS itself, it is mostly derived from spreads with g-sec or other stuff like that," a dealer at a primary dealership said. "The market will only wake up again in January when the foreign guys return."

 

A handful of trades in the one-month swap rate were attributed to the rise in the overnight Mumbai Interbank Offered Rate, the floating leg of the OIS contract. The overnight MIBOR rate was set at 5.54% Friday, its third straight day above the MSF rate of 5.50% and well above the policy repo rate of 5.25% that traders had expected would prevail during a period of easy monetary policy.

 

"This month-end period is proving to be quite annoying and if MIBOR continues to be above MSF, it just shows how badly the system needs liquidity," a dealer at a private-sector bank said. "Now MIBOR is not only a handful of trades, it looks at three full hours of trade, so it is even more consequential."

 

The RBI will buy INR 500 billion of seven gilts at an open market operation auction Monday, the first tranche in four it has scheduled until Jan. 22 to infuse INR-2-trillion of durable liquidity into the banking system. It will also conduct a $10 billion dollar-rupee buy-sell swap Jan. 13 that will add around INR 900 billion of durable liquidity for three years.

 

OUTLOOK

OIS rates are not traded on Saturdays. Swap rates may open steady Monday due to a lack of significant domestic interest rate cues, dealers said. The movement in US Treasury yields over the weekend may also lend cues. 

 

Trading activity is likely to be muted as several traders are on leave between Christmas and the New Year. Furthermore, foreign banks and primary dealerships, as well as traders offshore, have limited trading activity near the year-end as they close their accounts, 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 are expected to be 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 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	WEDNESDAY
1-year OIS	5.47%	5.46%
2-year OIS	5.56%	5.54%
5-year OIS	5.93%	5.91%
2-year MIFOR	6.12%	6.15%
5-year MIFOR	6.48%	6.52%

 

End

 

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

 

Edited by Vandana Hingorani

 

 

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