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Informist, Monday, Jan. 19, 2026

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates Monday ended at fresh multi-month highs due to offshore traders paying fixed rates in large quantum after the 10-year US Treasury yield hit a four-month high. The rise in the one-year swap rate past 5.55% and the five-year OIS rate above 6.05%, both psychologically crucial levels, triggered stop-losses for some traders, dealers said.

 

The one-year swap rate ended at 5.57%, its highest closing level since May 30, from 5.53% Friday. The five-year swap rate closed at 6.07% against 6.03% Friday, ending at its highest level since Feb. 21. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform rose to INR 504.60 billion from INR 425.10 billion Friday.

 

The 10-year US yield had been traversing the 4.10-4.20% range since early December but settled at 4.23% Friday, breaking the range on the higher side and closing at its highest since Sept. 2. US markets were shut Monday. US President Donald Trump told his top economic adviser Kevin Hassett that he prefers Hassett at his current post instead of appointing him as the next US Federal Reserve chair, which decreased bets of rate cuts in the world's largest economic once incumbent Chair Jerome Powell's term ends in May.

 

"It's just that offshore were receivers, so when they started to meaningfully pay this (OIS) has gone higher. (There are) no strong local factors to steer towards receiving," a dealer at a foreign bank said. "(US yields) also, but we've had significant paying since the Bloomberg index (announcement)."

 

Offshore traders had been receiving the five-year OIS rate at 5.98-5.99% levels until last week. However, Bloomberg Index Services' announcement that India's fully accessible route bonds were still under review and would not be immediately included in its flagship Global Aggregate Index soured sentiment, dealers said. Foreign portfolio investment into gilts is expected to be lacklustre and traders did not find India's rates market attractive, they said. 

 

Moreover, traders do not expect the Reserve Bank of India's Monetary Policy Committee to cut the repo rate any further after 125 basis points of reduction between February and December. Inflation is expected to rise in the coming quarters to near the central bank's medium-term target of 4%, with growth also expected to hold up above 6.5%. These dynamics are unlikely to put pressure on the rate-setting panel to ease policy at a time of high geopolitical uncertainty, dealers said. Traders largely expect the MPC to keep rates on hold for an extended period before raising rates in early 2027.

 

"The one-year swap had not seen too much activity even when the longer-term rates have been rising," a dealer at a primary dealership said. "So it is more of a catch-up effect than anything else. The rupee's fall also always brings some fears of tightening monetary policy down the line."

 

The rupee fell only marginally Monday, but hit an intraday low of 90.9950 a dollar, close to its record low of 91.0775 a dollar. The one-year dollar-rupee forward premium also rose to 2.80% Monday, its highest closing level since Dec. 29. Rising forward premiums have led to upward pressure on near-term OIS rates as well, dealers said. 

 

OUTLOOK

OIS rates may open steady Tuesday due to lack of domestic rate cues. The movement of US Treasury yields in Asian trade Tuesday may be closely tracked after the 10-year US yield topped 4.20% Friday, closing at its highest level in four months, dealers said. US markets are shut Monday for Martin Luther King Jr. Day.

 

Traders are uncertain about the direction of OIS rates, especially after the five-year OIS rose past the key 6.05% level Monday. With most traders not betting on any further rate cuts in India, benchmark OIS rates may continue to rise to fresh multi-month highs, dealers said. The RBI's Monetary Policy Committee is expected to next take action on the repo rate by raising it early in 2027.

 

Domestic traders are expected to pay fixed rates below the 6.00% rate on the five-year swap. However, others may unwind their paid fixed rate bets at a profit, capping the rise.

 

Traders will also monitor developments in the India-US trade negotiations, crude oil prices, and further geopolitical developments. On Tuesday, the one-year swap rate is seen at 5.48-5.62% and the five-year at 5.95-6.12%.

 

	At 1700 IST	FRIDAY
1-year OIS	5.57%	5.53%
2-year OIS	5.68%	5.63%
5-year OIS	6.07%	6.03%
2-year MIFOR	6.26%	6.23%
5-year MIFOR	6.58%	6.56%

 

End

 

US$1 = INR 90.91

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

 

Edited by Ashish Shirke

 

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