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Informist, Tuesday, Jan. 13, 2026

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates rose Tuesday, tracking a rise in domestic and US government bond yields, dealers said. Traders unwound their paid fixed-rate position in the five-year OIS rate at 5.98%, booking profits below the psychologically significant 6.00% mark, which is seen as tough to break.

The one-year swap rate ended at 5.51% against 5.49% Monday. The five-year swap rate ended at 5.96%, up 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 rose to INR 245.05 billion from INR 141.30 billion Monday. Activity from offshore traders remained muted, keeping trade volumes modest despite the rise, dealers said. 

The 10-year government bond yield ended at 6.63% from a low of 6.58% earlier, after Bloomberg Index Services Ltd. Tuesday said it was still reviewing India's inclusion in its flagship Global Aggregate Index, disappointing traders who had expected an announcement on inclusion this week. Traders had been counting on a confirmation, expecting the move to trigger foreign inflows of around $20 billion–$25 billion into gilts in 2026, dealers said. The index provider said feedback on India's eventual inclusion in the global investment-grade benchmark was largely positive, but respondents to the proposal flagged issues with operations and market infrastructure. Bloomberg Index Services said it would provide the next update by mid-2026.

"It was all tracking bonds, even in the morning," a dealer at a primary dealership said. "The five-year (swap rate) was down when bond yields were down, then reversed quickly after the Bloomberg announcement became known. A lot of people had taken some positions on it at least in the four- or five-year swaps." The five-year swap rate fell to a low of 5.92% in early trade. 

Meanwhile, the yield on the 10-year US Treasury note also rose to 4.20% at 1700 IST, up from 4.18% at the same time Monday. US yields rose ahead of the release of US CPI data for December after Indian market hours. Investors in the US largely expect a status quo on rates, with the CME FedWatch tool showing a 95% probability of no change in the benchmark rate. 

Before the US CPI data, offshore traders were not taking aggressive bets on India's rates. Moreover, there was a lack of divergent opinions on the near-term rate trajectory – OIS rates are pricing in a status quo on rates by the Reserve Bank of India's Monetary Policy Committee in 2026, though some traders are betting on a policy reversal and rate hikes to begin even by December.

"The activity has been entirely onshore today, at least the paying. It is very aggressive and some people have cut positions after the Bloomberg news," a dealer at a private-sector bank said. "I feel we just need a small trigger now to push it (the five-year OIS) rate above 6.00%."

Near-term swap rates rose less than those maturing in over three years, with the domestic rate view unchanged despite the disappointment over the Bloomberg index inclusion. However, a rise in dollar-rupee forward premiums and Mumbai Interbank Forward Outright rates pushed up even the one-year swap rate, dealers said. The one-year dollar-rupee forward premium rose to 2.71% from 2.60% Monday. The central bank set a cut-off premium of 728.00 paise at the auction of its three-year $10 billion dollar-rupee buy-sell swap Tuesday, higher than the 720 paise median in an Informist poll. 

OUTLOOK

On Wednesday, swap rates may open steady, given the lack of firm interest rate triggers. Traders may pay swap rates with the Bloomberg Global Aggregate index inclusion not imminent and the five-year OIS rate may test the key 6.00% mark, dealers said.

The overnight movement in US Treasury yields following the release of US CPI data may lend cues. US CPI inflation for December printed at 2.7% on year, in line with a Wall Street Journal estimate. With the 10-year US yield in the 4.10-4.20% range it has held since early December, the overseas trigger may have limited impact on OIS rates, dealers said. Fed funds futures reflected a 97.2% chance of status quo on rates at the FOMC's January meeting after the release, according to the CME's FedWatch tool. 

Some traders are also eyeing the US Supreme Court's ruling on the legality of the tariffs levied by US President Donald Trump, a decision which is likely Wednesday. Traders will also monitor developments in the India-US trade negotiations.

They may also track crude oil prices and geopolitical developments for cues. Wednesday, the one-year swap rate is seen at 5.42-5.55% and the five-year at 5.91-6.02%.

End

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

Edited by Saji George Titus

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