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Informist, Friday, Jan. 2, 2026

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended higher Friday tracking a rise in government bond yields and dollar-rupee forward premia, dealers said. Trade volumes remained thin, as was seen most of the week, barring the quarter-end and year-end on Wednesday, as several traders were on leave around New Year's Day.

 

The one-year swap rate ended at 5.48%, up from 5.45% Thursday. The five-year swap rate ended at 5.96%, from 5.93% at the end of the previous session. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 320.65 billion, up sharply from INR 183.00 billion Thursday.

 

"There was a general paying interest in the second half because of bond yields being up, though I don't know what to make of since volumes were really not there," a dealer at a private-sector bank said. "Now what influenced what, we can't say whether it was the chicken or the egg, but bond yields have been higher since morning."

 

The 10-year gilt yield ended at 6.61% against 6.58% Wednesday, pushed higher after the market absorbed INR 320 billion of the benchmark 6.48%, 2035 gilt at auction. This led to some paying in the five-year swap rate, dealers said.

 

However, the five-year OIS rate is not expected to cross 6.00% due to a lack of fundamental triggers on rates. Traders were also keen to enter bond-swap trades at the key level, betting on the spread of the five-year gilt yield over the five-year OIS rate widening.  Traders said OIS rates are likely to remain in a thin band until the release of the government's GDP advance estimate for 2025-26 (Apr-Mar) on Wednesday. Most traders do not expect a rate cut by the Reserve Bank of India's Monetary Policy Committee in February, but are hoping for a trigger that may open the door for an April rate cut, dealers said.  

 

Some swap rates were also influenced by a rise in the dollar-rupee forward premia and consequent impact on the Mumbai Interbank Forward Outright Rate, dealers said. The one-year dollar-rupee forward premium rose 6 basis points to 2.52% Friday, while the two-year and five-year MIFOR rates – the two most-traded contracts – were up 4 bps and 6 bps, respectively.

 

"There is a lot happening on the currency front. The RBI has supplied a lot of dollars to the market which is consistently pushed up forward premia, and that is having an impact on OIS time and again," a dealer at another private-sector bank said.

 

OUTLOOK

OIS rates are not traded Saturday. On Monday, swap rates may track the movement of bond yields. Trade volumes are expected to revive next week with the return of several foreign banks and offshore traders from New Year holiday, dealers said.

 

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 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.

 

The government's advance estimate of GDP for FY26, to be released Wednesday, may also 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. 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 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	THURSDAY
1-year OIS	5.48%	5.45%
2-year OIS	5.58%	5.56%
5-year OIS	5.96%	5.93%
2-year MIFOR	6.01%	5.97%
5-year MIFOR	6.39%	6.33%

 

End

 

US$1 = INR 90.20

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

 

 

Edited by Tanima Banerjee

 

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