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Informist, Tuesday, Feb. 10, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended mixed Tuesday as short-term swap rates inched higher and longer-tenure swaps fell. A fall in the benchmark 10-year US Treasury yield aided the decline in longer-term swaps, while expectations of systemic liquidity reducing led to traders paying fixed-rate contracts in short-term swaps, dealers said. 

 

The one-year swap rate ended at 5.51% against 5.52% Monday. The five-year swap rate closed at 6.13% against 6.18% the previous day. The total notional trade volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 664.55 billion, up from INR 543.37 billion Monday. Of this, the six-month overnight indexed swap rate saw the highest volume of INR 162.25 billion.

 

The yield on the benchmark 10-year US Treasury note was 4.19% at 1700 IST, down from 4.24% at the same time Monday. The 10-year US yield fell below the key 4.20% level ahead of US CPI data and the employment report for January, due this week. The five-year OIS rate fell below the key technical level of 6.17-6.18%, in early trade tracking the fall. Traders also unwound their bond swap trades, by selling the 6.01%, 2030 gilt and receiving the five-year swap, dealers said.  

 

"That spread (between the five-year swap and the five-year gilt) is too narrow now so people are unwinding their bond swaps," a dealer at a private sector bank said. Some traders chose to pay the five-year swap rate and buy short-term state bonds, they said. The Reserve Bank of India set a cut-off yield of 7.02% on Gujarat's five-year bond at the state bond auction Tuesday, against an Informist poll estimate of 7.07%. Lower-than-view cut-off yields on most bonds at the auction led to a further fall in longer-term swaps, dealers said.

 

However, swaps maturing in under a year inched higher even as systemic liquidity was ample, since several traders expect liquidity to fall in the near-term, irrespective of whether the Reserve Bank of India conducts a variable rate reverse repo operation. Some expect the RBI to conduct a VRRR this week. The RBI has not conducted a VRRR since Dec. 5. The net liquidity absorbed from the banking system by the RBI – a proxy for the liquidity surplus – was INR 3.11 trillion Monday, up from INR 2.97 trillion Sunday. By next week, this figure is likely to halve due to payments for goods and services tax, dealers said. Traders do not expect the RBI to announce any liquidity infusion measure in the near-term, after RBI Governor Sanjay Malhotra did not announce any open market operation auction or other such measure at the outcome of the Monetary Policy Committee meeting outcome Friday. With such a view, paying fixed rates at current levels, especially in the six-month swap rate, was lucrative, dealers said. 

 

"I don't think he (RBI) will have a VRRR now because he also knows that by 20th (Feb. 20) liquidity will reduce because of GST payments and (overnight borrowing) rates will be back at repo or above," a dealer at another private sector bank said. 

 

OUTLOOK

On Wednesday, OIS rates may track the overnight movement of US Treasury yields, dealers said. With no strong domestic interest rate cues until Thursday, the release of CPI data for January, traders may closely track the offshore cue and economic data in the US.

 

Traders expect the overnight Mumbai Interbank Offered Rate to rise in the near-term, which could push up short-term swaps, they said. However, the five-year OIS rate is seen falling to a low of 6.05-6.06?fore rising again, they said, especially if the 10-year US yield remains below the key 4.20% level. 

 

Traders may also track movement in Indian government bond yields, crude oil prices and the rupee movement for direction on swap rates. The one-year swap rate is seen at 5.40-5.60% and the five-year at 6.03-6.25%.

 

	At 1700 IST	MONDAY
1-year OIS	5.51%	5.52%
2-year OIS	5.66%	5.69%
5-year OIS	6.13%	6.18%
2-year MIFOR	6.06%	6.08%
5-year MIFOR	6.58%	6.61%

 

End

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

 

Edited by Deepshikha Bhardwaj

 

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