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Informist, Thursday, Feb. 12, 2026

By Aaryan Khanna

MUMBAI – Overnight indexed swap rates ended lower Thursday as offshore traders received fixed rates through the day tracking a fall in rates across emerging markets in Asia, dealers said. The release of CPI data under the new series with base 2024 at 1600 IST further led traders to unwind bets of a domestic rate hike in February 2027.

The one-year swap rate ended at 5.51% against 5.52% Wednesday. The five-year swap rate closed at 6.09% against 6.14% the previous day. The total notional trading volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 366.20 billion, similar to INR 354.30 billion Wednesday. Unlike the last two sessions, the six-month OIS was not the most-traded--it was the five-year OIS contract.

The five-year OIS rate opened at 6.16% tracking an overnight rise in US Treasury yields. The world's largest economy added a sharply higher-than-expected 135,000 jobs in January, with the unemployment rate falling to 4.3% from 4.4% in December. Bets on a rate cut by the Federal Open Market Committee in June, widely expected earlier, weakened to below 60%, according to the CME FedWatch tool. The 10-year US Treasury yield was around 4.18% through Indian market hours, from 4.14% at 1700 IST Wednesday.

However, offshore traders were receiving fixed rates in India in line with activity seen in other Asian markets, dealers said. Some traders were paying short-term swap rates and receiving the five-year OIS on view that the curve in India was steep. Others said the 6.20% mark on the five-year OIS would not be broken since the 10-year US yield was seemingly capped in the 4.20-4.30% band.

"It seemed like offshore was receiving and onshore paid," a dealer at a private-sector bank said. "I am honestly surprised that domestic traders seem to be giving more importance to the US yields than the foreigners."

Domestic traders had been paying the five-year OIS rate near 6.12% persistently through the day on view that the rate would not fall below the psychologically crucial level, dealers said. However, after the CPI release, the key level broke and the five-year swap rate dipped to as low as 6.0750%.

India's CPI inflation in the new series for January was 2.75%, against 2.8% seen in an Informist poll. Traders were widely expecting the Reserve Bank of India's Monetary Policy Committee to keep rates on hold in the remainder of 2026, which had not changed after the print.

Traders had feared that core inflation might rise in the new series, as the share of non-food items in the revised CPI rose to around 64% of the basket. Reserve Bank of India Governor Sanjay Malhotra had said last week that core inflation, barring precious metals, would be "range-bound" over the next few months.

Early calculations of core CPI inflation in the new series, which does not include volatile items like food and fuel, suggested a sharp fall from the old reading. Traders estimate January core CPI inflation around 3.5%, compared with a 28-month high of 4.6% in December under the old series. Union Bank's Chief Economic Adviser Kanika Pasricha estimated January core CPI inflation at 3.46%.

Following the print, dealers said that discussions and positioning on rate hikes in 2027 would be delayed for the next two months. An Informist poll before the CPI data pegged interest rates unchanged throughout 2026, with inflation set to rise and growth projected to remain robust this year. The rate-setting panel may tinker with the repo rate only in 2027-28 (Apr-Mar), when some economists expect it to raise the key policy rate, the poll said.

"The one-year (rate) had been pricing in some part of a hike in a year's time," a dealer at a primary dealership said. "After the data, it doesn't look like that trade will pick up any steam."

OUTLOOK

On Friday, OIS rates may track the movement in government bond yields. Gilt yields are expected to fall sharply after the RBI announced it bilaterally switched INR 755 billion worth of gilts maturing in FY27 with the government, dealers said.

Short-term swap rates are expected to trade in a narrow band following the release of CPI data Thursday. Data released Thursday showed headline CPI inflation in the new series was in line with expectations, at 2.75%, while core CPI inflation was estimated by economists at 3.5% or lower. Retail inflation returned to the RBI's 2-6% target band for the first time since August. The central bank's Monetary Policy Committee is now seen holding the policy repo rate at 5.25% through FY27, dealers said.

Some traders expect the Overnight Mumbai Interbank Outright 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 6.02-6.03% before rising again, they said, especially if the 10-year US yield remains below the key 4.20% level. 

Traders may also track movements in Indian government bond yields, crude oil prices, and the rupee. The one-year swap rate is seen at 5.40-5.55% and the five-year at 6.00-6.20%.

End

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

Edited by Akul Nishant Akhoury

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