More Stories

Informist, Wednesday, Dec. 31, 2025

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates, especially those maturing in under a year, inched lower Wednesday, on likely receiving from corporate houses and domestic traders for quarter-end valuations, dealers said. Some traders speculated that offshore investors were receiving fixed rates and purchasing gilts, since the "T+1" settlement of these trades would record these trades in the new year starting Thursday, dealers said.

 

The one-year swap rate ended at 5.46%, up from 5.45% Tuesday. The five-year swap rate ended at 5.92%, flat from Tuesday. The one-year swap rate has fallen 105 basis points in 2025, while the five-year swap rate has fallen 28 bps over the same period. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 539.80 billion, higher than INR 410.75 billion Tuesday. 

 

Wednesday being the last day of the December quarter, traders' book valuations for the reporting quarter will be marked to the day's levels, and hence, traders received fixed-rate contracts to show profitable book value, they said. However, any trades conducted Wednesday will be settled on Thursday, due to the "T+1" settlement of trades conducted on the Rupee Derivatives Dealing System, and will not reflect in earnings for the December quarter. FPIs may have been active in the swaps and gilt market since the settlement system would reflect Wednesday's trades in their books for the new year, dealers said. 

 

"OIS move is quite surprising because we saw a high of 5.93% (during the day) and we're close to 5.90% now, not sure where flows are coming from, it looks like some corporates," a trader at a primary dealership said.  

 

On Tuesday, the three-month swap rate had ended lower as traders had squared off their paid positions near the end of the quarter. Traders had re-adjusted their portfolio maturities since the three-month swap will mature on Mar. 30, near the end of Apr-Mar (2025-26). Any excess positions in such contracts would spill onto banks' balance sheets in FY27, dealers said. However, on Wednesday, the swap was paid, since its maturity is Apr. 2, 2026, the next financial year. Some traders who had received this tenure would have to bear a rise in overnight money market rates at the end of March, a seasonal occurrence, dealers said, and hence paid fixed rates to offset this, they said. 

 

"Three-month (swap) is just a technical move. The next three-month maturity is in April, so someone receiving the three-month would have to bear with funding being high at the end of March," a trader at another primary dealership said. 

 

Traders continued to play on the lucrative spread between the five-year swap rate and the five-year benchmark 6.01%, 2030 gilt by paying fixed-rate contracts and purchasing the bond, dealers said.  

 

OUTLOOK

On Thursday, swap rates may open steady due to a lack of fresh cues, dealers said. Trade volume is likely to be thin because several traders are on leave for the New Year and many offshore markets are closed.

 

In January, foreign banks, primary dealers, and offshore traders are expected to resume active trading and are likely to receive swap rates, dealers said. Market participants expect inflows into debt instruments from foreign portfolio investors to begin in the new year and to exceed $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, dealers said.

 

India's advance estimate of GDP for 2025-26 (Apr-Mar), released in the first week of January, may also be crucial for traders to place bets on further repo rate cuts by the Monetary Policy Committee, though no rate-cut bets for February are currently reflected in OIS rates, dealers said. After India's CPI for November was essentially a "non-event" for swaps, traders are focusing on CPI prints from January onwards, with the RBI projecting retail inflation to average 2.9% in the Jan-Mar quarter. 

 

Traders will monitor developments on 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 at 5.85-6.02%.

 

	At 1700 IST	TUESDAY
1-year OIS	5.46%	5.45%
2-year OIS	5.55%	5.56%
5-year OIS	5.92%	5.92%
2-year MIFOR	6.02%	6.08%
5-year MIFOR	6.37%	6.42%

 

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.