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Informist, Wednesday, Feb. 4, 2026

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended lower due to offshore traders receiving fixed rates aggressively after India and the US agreed to a trade deal, dealers said. The fall in the Mumbai Interbank Forward Outright Rates also pulled down OIS rates.

 

The one-year swap rate ended at 5.51%, from 5.52% Tuesday. The five-year swap rate closed at 6.08%, down from 6.12% the previous day. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform fell to INR 572.65 billion from INR 836.40 billion Tuesday.

 

"The curve had already steepened, so this flattening was due," a dealer at a private-sector bank said. "FPIs (foreign portfolio investors) are preferring swaps rather than bonds because the spread is only around 20 basis points – why would you take supply risk for only that much?" The five-year benchmark 6.01%, 2030 gilt ended at 6.30% Wednesday, offering a spread of only 22 bps over the five-year OIS rate. 

 

Both onshore and offshore traders had hit stop-losses on their paid fixed-rate bets on Tuesday after India and the US agreed to a trade deal that lowered the US tariffs on Indian exports to 18%. The surge in the rupee on Tuesday led foreign traders to unwind their paid positions and receive fixed rates over the past two sessions, dealers said.

 

The fall in the MIFOR rates due to the Reserve Bank of India's $10 billion, three-year dollar-rupee buy-sell swap auction also led traders to receive fixed rates in OIS. The two-year MIFOR rate fell to a low of 5.98% from 6.06% Tuesday, before settling at 6.02%. The five-year forward outright rate ended little changed, but had fallen 6 basis points to 6.49% at the day's low. 

 

"Liquidity is in a better spot, so domestic banks and mutual funds are unwinding their paid positions in up to three-month swap rates," a dealer at a primary dealership said. "MIFOR has also come down quite a lot and that is also causing some receiving, for people who would have taken a position in that market."

 

The overnight Mumbai Interbank Outright Rate – the floating leg of the OIS contract – fell to 5.04% Wednesday from 5.13% Tuesday and 5.53% Friday. The overnight MIBOR is trading at its lowest level since August 2022. The net liquidity absorbed from the banking system by the RBI – a proxy for the liquidity surplus – rose to INR 2.17 trillion Tuesday, nearly a two-month high, from INR 1.71 trillion Monday. With the overnight rate falling, the one-month OIS rate fell 3 basis points to 5.23% in INR 106 billion worth of trade, higher than usual.

 

However, dealers' expectations on the Reserve Bank of India's liquidity management and monetary policy actions were mixed. Some said the central bank may not announce further liquidity infusion operations in the coming week after the trade deal was struck. The inflow of dollars is expected to increase rupee liquidity in the domestic banking system. Others said that even without fresh operations, the RBI will likely commit to maintaining surplus liquidity in the banking system over the next few months to better transmit repo rate cuts that took place from February to December last year.

 

OUTLOOK

On Thursday, traders may continue to receive fixed rates due to heavy surplus liquidity and low MIBOR rates, dealers said. Offshore investors and traders are also expected to continue receiving fixed rates after India and the US agreed to a trade deal, boosting demand for Indian assets.

 

However, a fall in the five-year OIS rate below 6.05% may not come about before the RBI's commentary on liquidity management at the outcome of the Monetary Policy Committee meeting Friday.  Some traders also fear the RBI will push the MIBOR rate higher from its current three-year low by conducting a variable rate reverse repo operation. There was also caution before the MPC outcome Friday, though the rate-setting panel is widely expected to maintain the status quo. Several participants see the terminal repo rate at 5.25%, with the MPC likely to opt for a "prolonged pause".

 

Traders may also track movement in US Treasury yields and Indian government bond yields. Given the disruption to global trade and geopolitical conflicts even after the trade deal, the MPC is unlikely to change its stance to "accommodative" after reverting to "neutral" in June, dealers said. While nothing of significance is expected on the interest rate front, traders' focus is on the central bank's comments on liquidity at the post-policy announcement.

 

Crude oil prices, the rupee's movement against the dollar, and geopolitical tensions may influence swap rates. The one-year swap rate is seen at 5.40-5.60% and the five-year at 6.00-6.20%.

 

	At 1700 IST	TUESDAY
1-year OIS	5.51%	5.52%
2-year OIS	5.64%	5.67%
5-year OIS	6.08%	6.12%
2-year MIFOR	6.02%	6.06%
5-year MIFOR	6.54%	6.55%

 

End

 

US$1 = INR 90.44

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

 

Edited by Saji George Titus 

 

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