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Informist, Monday, Feb. 16, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended lower Monday, with longer-term swaps down more, as offshore traders received fixed rate contracts tracking a fall in the 10-year US Treasury yield to the key 4.05% level, dealers said. The five-year overnight indexed swap rate ended at its lowest level in a month.

 

The one-year swap rate ended at 5.49% Monday, compared with 5.50% the previous day. The five-year swap rate closed at 6.03%, down from 6.07% Friday. The total notional trading volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 375.35 billion, similar to INR 393.40 billion Friday. The yield on the benchmark 10-year US Treasury note was 4.05% at 1700 IST, down from 4.12% at the same time Friday. The 10-year US yield fell to its lowest level since early December after CPI inflation for January in the US was below expectations. 

 

Data showed US CPI annual inflation eased to 2.4% in January from 2.7% in December, below the forecast of 2.5% in a poll by The Wall Street Journal. Core CPI inflation--which excludes volatile items like food and fuel--was 2.5% on year, in line with estimates. The data bolstered hopes of two rate cuts of 25 basis points each by the US Federal Open Market Committee in the rest of 2026.

 

Tracking a fall in US yields, offshore hedge funds unwound their paid fixed rate contracts in both onshore and non-deliverable OIS rates, dealers said. Traders expect the 10-year US yield to fall to 4.00% or 3.95% in the near term. Similarly, the five-year overnight indexed swap rate is seen falling to the psychologically crucial level of 6.00%. However, the five-year OIS failed to hit 6.00%, at which traders are likely to trigger stop-losses after which the rate may fall to 5.98?fore rising again, dealers said. The offshore flows were not large, especially since US financial markets were shut Monday for Presidents' Day. 

 

"6.02% (on the five-year OIS) seemed to see a good handshake, volumes were very good at this level," a dealer at a private-sector bank said. "Those who were paid got to unwind (receive fixed rates) and those who wanted to pay got a good level. The flow must have not been much, but the offshore guys would have received in ND-OIS (non-deliverable OIS rates) also, because rates were down there as well." Mutual funds were likely paying fixed rate contracts, limiting a fall, dealers said. 

 

Uncertainty on the Reserve Bank of India's liquidity management operations and the lack of a view on further cuts in the repo rate deterred a fall in short-term swap rates even as liquidity in the banking system remained above INR 3.00 trillion. Traders preferred receiving fixed rates in longer-term swaps, leading to a "flattening" of the OIS rate curve, dealers said.

 

"Since the domestic policy rate is not going down any more, the impact of US yields on OIS is only going to increase," a dealer at a primary dealership said. "As US yields go up, the five-year goes up and since they have come down, there is a natural flattening of OIS rates."

 

OUTLOOK
On Tuesday, OIS rates may track the movement of US Treasury yields in early Asian trade, dealers said. Traders are betting on the 10-year US yield falling to 4.00% or lower. The minutes of the US FOMC's January meeting, due 0030 IST Thursday, is the next global cue traders are tracking.

 

Tuesday, swap rates may also track the movement of Indian government bond yields after the result of the INR 379-billion state bond auction. Since the notified size of the auction is largely in line with the INR 390 billion indicated in states' Jan-Mar borrowing calendar, demand is seen firm, dealers said. 

 

While offshore traders are likely to continue to receive fixed rate contracts in swaps, the fall in short-term swap rates is seen limited as traders expect the Overnight Mumbai Interbank Outright Rate to rise in the near term, dealers said. After India's CPI inflation data for January, the RBI's Monetary Policy Committee is now seen holding the policy repo rate at 5.25% through FY27, dealers said. 

 

Traders may also track movements in crude oil prices and the rupee. The one-year swap rate is seen at 5.40-5.55% and the five-year at 5.95-6.15%.

 

	At 1700 IST	FRIDAY
1-year OIS	5.49%	5.50%
2-year OIS	5.60%	5.62%
5-year OIS	6.03%	6.07%
2-year MIFOR	5.98%	6.01%
5-year MIFOR	6.47%	6.50%

 

End

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

 

With inputs from Aaryan Khanna

Edited by Rajeev Pai

 

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