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Informist, Thursday, Jan. 29, 2026

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended steady Thursday and the five-year OIS rate ended off the day's high tracking the movement of bond yields, dealers said. Swap rates rose earlier in the day due to a rise in crude oil prices and some offshore investors paying fixed rate contracts, they said. 

The one-year swap rate ended at 5.57% from 5.58% Wednesday. The five-year swap rate closed at 6.16% against 6.15% the previous day. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 362.50 billion, down from INR 468.80 billion Wednesday. The yield on the 10-year US Treasury yield was little changed after the US Federal Open Market Committee left interest rates unchanged, a decision in line with expectations. At 1700 IST, the 10-year US yield was 4.26%, little changed from 4.25% at the same time Wednesday.

After three consecutive rate cuts, the FOMC Wednesday left the federal funds target rate range unchanged at 3.50-3.75%. However, two officials--Stephen I. Miran and Christopher J. Waller--voted for a 25-basis-point cut. US Federal Reserve Chair Jerome Powell reiterated that the Fed will make decisions based on data "meeting to meeting". Since the movement in US yields after the FOMC meeting was muted, swap traders had little to take away from the policy outcome. Swap traders are concerned more about geopolitical disruptions and central bank independence than about interest rates right now, dealers said, following comments from US President Donald Trump demanding rate cuts from the FOMC.

A rise in crude oil prices pushed up swap rates in early trade and some offshore traders paid fixed rate contracts, dealers said. Brent Crude oil futures for March rose above the psychologically crucial $70 per-barrel mark on concern that possible military action by the US against Iran could lead to supply disruptions. Some dealers said traders hit stop-losses as the five-year OIS rate rose above the key 6.17% level to the day's high of 6.19%. The level of 6.19% is the highest for the five-year swap since Jan. 22, 2025. A rise in overnight borrowing rates also pushed up swaps, as systemic liquidity remained tight. The net liquidity absorbed from the banking system by the Reserve Bank of India--a proxy for the liquidity surplus--was INR 677.08 billion Wednesday, down from INR 836.87 billion Tuesday. 

"It seems like we had some (offshore) flows in the morning," a dealer at a private-sector bank said. "For no reason at all, five-year has hit 6.19%, offshore seems to have hit a stop-loss again. US yields have also not reacted to FOMC so I don't see any reason why it had to hit 6.19%." Swap rates have risen sharply since December, possibly because of offshore traders hitting stop-losses, dealers have said.

However, later in the day, swaps gave up the gains to trade steady, tracking a fall in bond yields. Bond yields inched lower after cut-off prices at the RBI's INR 500-billion open market operation auction were better than expected, especially for the longer-term bonds that the central bank had offered to buy. The RBI set a cut-off price of INR 99.28 on the 7.30%, 2053 bond, sharply higher than an Informist Poll estimate of INR 99.05. Speculation of the RBI conducting a switch of government bonds with the Centre this week also spurred some bond purchases, dealers said, as such a move could reduce the Centre's gross borrowing for FY27. 

"I think now (five-year) OIS will be in the range of 6.05%-6.35%, there'll be a slight dip until we get some confirmation, news or signal that rates should move higher," a dealer at a private-sector bank said. "OIS is pricing in four to five hikes, which is far too much, we're barely expecting one rate hike within the next year so rates should stay here until there's a definitive signal on an upward move."

OUTLOOK

On Friday, overnight indexed swap rates will track the overnight movement in US Treasury yields at the opening. Later in the day, they will track bond yields after the result of the INR 320-billion gilt auction where the government will sell the 10-year benchmark 6.48%, 2035 bond.

The movement of swaps will hinge on offshore flows, as offshore traders continue to pay fixed rates, dealers said. Until the Budget for the financial year 2026-27 (Apr-Mar) is presented Sunday, which will indirectly impact swaps through movements in bond yields, and the outcome of the RBI's Monetary Policy Committee meeting next week is known, swaps are expected to trade in a narrow range, dealers said. Offshore activity is expected to be the only trigger till then.

Traders will also monitor developments in the India-US trade negotiations, crude oil prices, and geopolitics. The one-year swap rate is seen at 5.52-5.68% and the five-year at 6.03-6.25%.

End

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

Edited by Rajeev Pai

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