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Informist, Monday, Jan. 5, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended off the day's high Monday after swaps hit the upper end of the recent trading range, a level seen as lucrative for receiving fixed-rate contracts, dealers said. Some traders unwound bond-swap trades they had entered into last week by selling the five-year benchmark 6.01%, 2030 gilt and unwinding paid contracts in the five-year swap, dealers said.

 

The one-year swap rate ended at 5.49%, up a wee bit from 5.48% Friday. The five-year swap rate ended at 5.98%, from 5.96% at the end of the previous session. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 342.45 billion, similar to INR 320.65 billion Friday. The yield on the benchmark 10-year US Treasury note was 4.17% at 1700 IST, similar to the level seen at the same time Friday.

 

Earlier in the day, traders paid fixed-rate contracts, tracking a rise in government bond yields. Bond prices fell sharply at the market opening after the Reserve Bank of India, after market hours Friday, said states aim to borrow INR 5 trillion through bonds in the March quarter. This is the highest target set by states for borrowing in a single quarter. Traders who were unable to sell their positions in gilts after the fall in prices hedged their positions by paying fixed-rate contracts in swaps, dealers said. The five-year swap rate hit a day's high of 5.99% but did not hit the psychologically crucial 6.00% mark.

 

The 5.99% level on the five-year swap rate is lucrative to receive fixed rate contracts, dealers said. "Whoever paid at 5.88-5.90% (on the five-year swap) is unwinding at these (current) levels," a dealer at a private-sector bank said.

 

Offshore activity was negligible and most trades were from domestic traders, dealers said, with volumes remaining thin, like last week. As bond prices fell, some traders sold the 6.01%, 2030 bond and received fixed-rate contracts in the five-year swap. The 6.01%, 2030 bond closed at INR 98.61, down almost 14 paise from Friday's close, at a yield of 6.37%.

 

If the five-year swap rate rises above 6.00%, domestic and offshore traders are likely to hit stop-losses, which could see the five-year swap rate rising to 6.08%-6.10%, dealers said. "There is no joy in receiving (OIS) right now. Trade is so choppy, there's no joy on either side," said a dealer at another private-sector bank. "Suddenly, the RBI could intervene in gilts, it can add some (profitable) on-the-run paper at OMO (open market operation auctions), or if 10-year (6.48%, 2035 yield) hits 6.70%, RBI will buy (gilts). But because of US yields or geopolitics, rates can rise. So can't go short, can't go long. It (the five-year swap) is stuck in a range of 5.90-5.97%, people are playing on a 4-5 bps (basis points) spread. But there are no volumes for quite long, people are stuck."

 

Data released after market hours Friday showed the central bank bought gilts onscreen on Dec. 23, the day the 10-year benchmark gilt yield rose to 6.70%, the highest in the financial year ending March. Traders see this as an indication that the RBI is not comfortable with so high a yield.

 

OUTLOOK

On Tuesday, swap rates may track the movement of bond yields ahead of heavy supply of INR 301 billion at the first state bond auction of the March quarter. Volumes may pick up as traders, especially offshore, return to their desks after the New Year holidays, dealers said. Traders will closely track technical levels on swaps, as the five-year swap inched close to the key 6.00% level Monday.

 

The government's advance estimate of GDP for FY26, to be released Wednesday, may be crucial for traders to place bets on further repo rate cuts by the RBI's Monetary Policy Committee, though no rate-cut bets for February are currently reflected in OIS rates, dealers said. However, many traders are not tracking the data closely as the focus currently is on supply in the bond market. 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.

 

Foreign banks, primary dealers, and offshore traders are expected to receive swap rates this month, dealers said. Market participants expect inflows into debt instruments from foreign portfolio investors to begin this year and exceed $25 billion as India's fully accessible route bonds are likely to be added to Bloomberg's flagship Global Aggregate Index. So far, the only foreign inflows have been passive flows tracking indices in which Indian gilts are already included, dealers said. 

 

Traders will also monitor developments in the India-US negotiations for a trade deal. They may also track crude oil prices and geopolitical developments for cues. The one-year swap rate is seen at 5.40-5.52% Tuesday and the five-year at 5.85-6.10%.

 

	At 1700 IST	FRIDAY
1-year OIS	5.49%	5.48%
2-year OIS	5.59%	5.58%
5-year OIS	5.98%	5.96%
2-year MIFOR	6.06%	6.01%
5-year MIFOR	6.45%	6.39%

 

End

 

US$1 = INR 90.2775

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

 

Edited by Rajeev Pai

 

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