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Informist, Thursday, Jan. 22, 2026

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates ended on a mixed note Thursday, though the quantum of change from the previous close was limited. Traders are waiting for fresh interest cues on the domestic and global front after the recent volatility in swap rates, dealers said. 

The one-year swap rate ended at 5.57%, down from 5.58% Wednesday. The five-year swap rate closed at 6.09% against 6.08% the previous day. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform fell to INR 395.95 billion from INR 470.20 billion Wednesday.

The five-year swap rate was lower for most of the day as domestic traders unwound paid fixed rate bets, expecting the Reserve Bank of India to this week announce further measures to infuse more durable liquidity into the banking system, dealers said. However, a late swell of inflows from offshore traders pushed swap rates up near the end of trade. The 10-year US Treasury yield was 4.26% at 1700 IST Thursday, down from 4.28% at the same time Wednesday, but had fallen to as low as 4.23% and rose near the close.

"While offshore flows have cooled, the flow is still only in one direction," a dealer at a private-sector bank said. "Once they have started paying, we know that these institutions are not here for 2-3 basis point view. And the MPC (Monetary Policy Committee) is not likely to do anything on softening policy right now."

The market's view on domestic interest rates remained unchanged, dealers said. The Reserve Bank of India's Monetary Policy Committee is not expected to cut the repo rate any further from the current 5.25%. The rate-setting panel cut its policy rate by 125 basis points between February and December 2025. Its next move on the repo rate is seen as a hike by market participants, though this is only expected in 2027.

"Offshore traders had paid aggressively after US yields (10-year US yield) went above 4.20%, but even that flow has cooled now since US yields have not followed through," a dealer at a primary dealership said. "Domestic side is on the receiving end now because you don't know what RBI will announce and when – that will keep the five-year (rate) around 6.10%."

OUTLOOK

On Friday, OIS rates may take cues from overnight movement in US Treasury yields due to lack of domestic interest rate triggers, dealers said. With most traders not betting on any further rate cuts in India, benchmark OIS rates may continue to rise, dealers said.

Traders are uncertain about the direction of OIS rates, especially after the five-year OIS rose past the key 6.05% level this week. Some domestic traders have been unwinding paid fixed rate bets at a profit, while offshore traders are expected to continue paying fixed rates, dealers said. The Monetary Policy Committee is expected to next take action on the repo rate by raising it in 2027.

Domestic traders are expected to pay fixed rates below the 6.05% rate on the five-year swap. The five-year OIS rate is expected to trade in the 6.03-6.20% range in the near term amid heightened geopolitical uncertainty and rise in US yields.

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

End

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

Edited by Ashish Shirke

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