Citibank structured the first constant maturity swap in the local Indian market last month, said an official at the bank in Mumbai. One of the largest local corporates entered the swap on the back of a bond issuance as a way to manage interest-rate risk, he said. He declined to name the counterparty or reveal details of the bond. A rival banker said constant maturity swaps have not been executed before in the Indian market because most Indian corporates are too cautious to enter exotic derivatives.
In the swap Citibank pays a fixed rate to the client and receives a rate based on the five-year Indian government treasury bond's current yield. The fixed rate is reset annually, and is currently around 7.95%. The maturity of the swap is five years. The official said the annual reset allows the counterparty a greater strategic view of managing interest-rate risk rather than having to manage rates that are reset daily. He declined to give further specifics on the trade.
