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Informist, Thursday, Jan. 1, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended steady in thin trade Thursday owing to a lack of major triggers. Several traders were on leave on New Year's Day and major offshore markets were shut. Swaps mildly tracked a movement in bond yields amid the dearth of cues.

 

The one-year swap rate ended at 5.45%, from 5.46% Wednesday. The five-year swap rate ended at 5.93%, from 5.92% at the end of the previous session. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 183.00 billion, down nearly 70% from INR 539.80 billion Wednesday.

 

"OIS is tracking G-sec (government securities) today (Thursday). Bonds (prices) are well off lows, so OIS is also seeing slight receiving," a dealer at a private-sector bank said. "There's nothing else happening. No offshore flows, most places have holiday for New Year's Day. Just that last-day first-day thing is there, most of which was yesterday (Wednesday)."

 

Since Wednesday was the last day of the December quarter, traders' book valuations for the reporting quarter were to be marked to the day's levels. Hence, traders had received fixed-rate contracts to show a profitable book value, dealers said.

 

Swaps tracked the movement of bond yields Thursday, which were mixed during the day as low volumes amplified price action, dealers said. Other than that, some traders paid fixed rates in swaps maturing in three months or less, especially the three-month swap, whose maturity coincides with the start of the financial year 2026-27 (Apr-Mar).

 

"No large volumes in OIS. Just in three-month and two-month there's some arbitrage between three-month forward premiums," said a trader at a primary dealership. "The FY26 end-rate, the 3-month (forwards rate) used to be quite high, and that has to be factored in OIS. If you track three-month forward premium, the forward effective interest rate shoots up to 10-12%, so you'll see this trade continue on 31st Jan in two-month OIS  and in one-month OIS in Feb-end."

 

However, due to the low per-basis-point value of short-term swaps, the large volume in these tenures compared to others was not significant, dealers said. 

 

OUTLOOK

On Friday, swap rates may track the movement of bond yields, especially after the result of the weekly gilt auction. The government will sell INR 320 billion of the 10-year benchmark 6.48%, 2035 gilt Friday. Traders may hedge their bond purchases by paying fixed rate contracts in swaps, dealers said. The trading volume is likely to remain thin because several traders are on leave for the New Year weekend and many offshore markets are closed.

 

This month, 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.

 

The government's advance estimate of GDP for FY26, to be released in the first week of January, may also be crucial for traders to place bets on further repo rate cuts by the Reserve Bank of India's 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 March quarter. 

 

Traders will monitor developments in the the India-US negotiations for a trade deal. They may also track crude oil prices for cues. The one-year swap rate is seen at 5.40-5.52% Friday and the five-year at 5.85-6.02%.

 

	At 1700 IST	WEDNESDAY
1-year OIS	5.45%	5.46%
2-year OIS	5.56%	5.55%
5-year OIS	5.93%	5.92%
2-year MIFOR	5.97%	6.02%
5-year MIFOR	6.33%	6.37%

 

End

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

 

Edited by Rajeev Pai

 

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