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Informist, Wednesday, Jan. 7, 2026

 

By Aaryan Khanna

 

MUMBAI – Overnight indexed swap rates ended lower Wednesday, tracking a decline in US Treasury yields. Offshore traders continued to receive fixed rates at levels they viewed as attractive, based on expectations that the policy repo rate would remain at the current 5.25% for an extended period, along with potential inflows from India's inclusion in Bloomberg's Global Aggregate Bond Index. India's first advance estimate of GDP growth for 2025–26 (Apr–Mar) had no impact on swap rates.

 

The one-year swap rate ended at 5.46%, compared to 5.48% Tuesday. The five-year swap rate ended at 5.92%, from 5.95% at the end of the previous session. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 330.60 billion, higher than INR 230.50 billion Tuesday. 

 

"US yields are down, there has been some receiving across Asia as well," a dealer at a foreign bank said. "That has led to a decent fall in rates over the last two days, but again we should see paying at 5.90% (on the five-year OIS rate)."

 

The yield on the benchmark 10-year US Treasury note was 4.15% at 1700 IST Wednesday, compared to 4.19% at the same time Tuesday. Traders assessed the recent geopolitical developments between the US and Venezuela and awaited key US data, from weekly unemployment reports on Thursday and the non-farm payrolls for December, scheduled Friday. Fed funds futures reflect a 83.9% possibility of the US Federal Open Market Committee standing pat on rates at its next meeting in the last week of January.

 

However, traders are more hopeful about US rate cuts later this year, when US President Donald Trump selects a replacement for Federal Reserve Chair Jerome Powell, whose term ends in May. The replacement may lead to rate cuts, in line with US President Donald Trump's preference.

 

Foreign banks and primary dealers also expect India's OIS rates to fall if foreign inflows come into India following the inclusion of fully accessible route bonds in Bloomberg's flagship debt index. Inflows of $15 billion to $20 billion are expected over the course of the year if India is announced for inclusion.

 

Some traders are still hopeful about the Reserve Bank of India's Monetary Policy Committee cutting the repo repo in either February or April, though swap rates reflect the majority view that the rate-cutting cycle is at an end. The one-year swap rate does not reflect any rate cuts and traders have priced in a repo rate hike of 50 basis points between 12 and 24 months, according to the OIS rates, dealers said. 

 

"The receiving bias has been there from offshore at around 5.98-5.99% levels rather than at 5.85?rlier, but offshore flows have not really picked up yet," a dealer at a primary dealership said. The five-year OIS ended at 5.98% Monday before dropping over the last two days. "The two-year swap rate, which is pricing in rate hikes, could emerge as a solid bet before the policy if one wants to position for further rate cuts in India."

 

Meanwhile, there was no market reaction to the GDP data released by the statistics ministry at 1600 IST, with traders saying that it did not impact their views on domestic interest rates. India's GDP growth in FY26 is seen rising to 7.4% as per the government's first advance estimate, from 6.5% in FY25 and against 7.5% growth seen in an Informist poll.

 

Positioning before the release was light for most traders. The broad view is that GDP growth could be lower in Oct-Mar from Apr-Sept due to the impact of US tariffs on Indian exports, unless a trade deal is struck with the US, dealers said. Some traders also disregarded the figure as they felt the data would be revised in the next two sets of GDP figures to be released. The government will also introduce a new series of GDP in February, with the base year of 2022-23, against the current 2011-12, which may present an entirely different reading of the data, dealers said. 

 

OUTLOOK

On Thursday, swap rates may open steady on caution before key US data points in the latter half of the week. The movement in US Treasury yields before the scheduled labour market data may lend cues to swap rates, dealers said.

 

The US will release weekly unemployment data after Indian market hours Thursday, while US non-farm payrolls data for December is scheduled for release after Indian market hours Friday. The impact of the data on US rate expectations and US yields will influence domestic OIS rates. Without a strong trigger, the five-year swap rate is not seen falling below 5.89%, dealers said. 

 

Traders will closely track technical levels on swaps, as the five-year swap neared the key 6.00% level earlier this week. 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% and the five-year at 5.85-6.12% Thursday.

 

	At 1700 IST	TUESDAY
1-year OIS	5.46%	5.48%
2-year OIS	5.55%	5.58%
5-year OIS	5.92%	5.95%
2-year MIFOR	6.01%	6.01%
5-year MIFOR	6.40%	6.41%

 

End

 

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

 

Edited by Tanima Banerjee

 

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