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Informist, Friday, Jan. 9, 2026

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates inched higher Friday, with the two-to-five-year segments rising in thin trade due to a rise in US Treasury yields. Only the one-month swap rate saw signifcant volumes during the day, with chunk trades signalling an investor was either hedging an underlying position or a trader was placing a bet on the February monetary policy review.

The one-year swap rate ended at 5.49%, compared to 5.48% Thursday. The benchmark for near-term rate expectations was only traded three times for a total volume of INR 1.50 billion. The five-year swap rate ended at 5.96%, from 5.94% at the end of the previous session. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 214.55 billion, lower than INR 247.15 billion Thursday. Of that figure, INR 138.50 billion came in the one-month swap contract.

While traders said high overnight Mumbai Interbank Outright Rates had been pushing near-term swap rates higher, the activity Friday was likely not linked to money market rates, dealers said. Between 1518 IST and 1528 IST, INR 105 billion was traded in only five trades, leading to speculation that it was a view-based trade. However, some traders said the activity was not very consequential as the one-month swap does not generate sizeable profits due to its nature as a derivative instrument and its short-term tenor.

"The paying in the five-year and mid-segment was led by the US yields going up before NFP (US non-farm payrolls), people were keeping an eye," a dealer at a primary dealership said. "I'm not sure what exactly happened in the one-month swap – probably some investor hedging his flows or position for the (February) policy." The one-month swap rates matures on Feb. 12, encompassing the Monetary Policy Committee's next rate decision and ending on the day of the release of January CPI inflation data. 

The 10-year US Treasury yield rose to 4.18% at the Indian market close Friday from 4.15% at 1700 IST Thursday ahead of the release of US non-farm payrolls data at 1900 IST. Traders said the thin trade volumes were due to caution before the data and its impact on US rate cut expectations. US Fed funds futures were pricing in a 86.2% chance of a status quo at the US Federal Open Market Committee's Jan. 28 rate decision before the reading, according to CME's FedWatch tool.

Dealers said that if the US stands pat on rates, a rate cut in India at the next monetary policy review in February is also unlikely. Swap rates are not pricing in further rate cuts after the MPC cut the policy repo rate by 125 basis points between February and December 2025 to 5.25%, with CPI inflation seen having bottomed out. Traders also avoided large bets that piled on risk ahead of the weekend, especially with increased geopolitical uncertainty and before India's CPI data release for December on Monday.

OUTLOOK

OIS rates are not traded Saturday. On Monday, swap rates may track the movement of US Treasury yields over the weekend after US non-farm payrolls data, released after Indian market hours Friday, dealers said.

The world's largest economy added a seasonally adjusted 50,000 jobs in December, below the 73,000 jobs estimated by the Wall Street Journal and 56,000 added in November. Jobs gains in the prior two months were also revised down by 76,000. However, the US unemployment rate fell to 4.4% in December from a downwardly revised 4.5% in November. Fed funds futures reflected a 95% chance of a status quo on rates at the FOMC's December meeting after the release, according to the CME's FedWatch tool. 

Swaps will also track the movement of gilt yields during the day, dealers said. Traders will closely track technical levels on swaps, with 5.89% seen as a strong support and 6.00% a strong resistance, difficult to break without a firm trigger on either side, 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 5.42-5.55% and the five-year at 5.88-6.02% Monday.

End

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

Edited by Tanima Banerjee

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