India IRS Review
5-yr OIS at 1-wk high on offshore paying, US-Iran tensions
This story was originally published at 21:49 IST on 20 February 2026
Register to read our real-time news.Informist, Friday, Feb. 20, 2026
By Cassandra Carvalho
MUMBAI – Overnight indexed swap rates surged Friday as offshore traders aggressively paid fixed-rate contracts, dealers said. Onshore traders too unwound their received bets in swaps due to rising geopolitical tensions between the US and Iran and a rise in crude oil prices, dealers said. Traders also pared some bets on further US rate cuts in 2026 after the minutes of the US Federal Open Market Committee's latest meeting showed some policymakers considering rate hikes due to elevated inflation, they said.
The one-year swap rate ended at 5.52%, up from 5.50% Wednesday. The five-year swap rate closed at 6.10%, the highest since Feb. 12, and up from 6.04% the previous session. The five-year OIS rate rose 6 basis points Friday, the most since Feb. 6--the day of the Reserve Bank of India's Monetary Policy Committee announcement. Financial markets administered by the RBI were shut Thursday for Shivaji Jayanti. The total notional trading volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 517.70 billion, sharply up from INR 279.45 billion Wednesday.
"US yields had risen in the past two days, and there's US-Iran tensions," a dealer at a private-sector bank said. "The FOMC minutes were also hawkish. We're not sure of the quantum of (further) rate cuts now and when it will happen."
The yield on the benchmark 10-year US Treasury note was 4.08% at 1700 IST, hitting a high of 4.11% Thursday and up from 4.07% at the same time Wednesday. Brent Crude for April delivery rose to $71.39 a barrel at 1700 IST from $68.57 a barrel at the same time Wednesday. US President Donald Trump said the world will find out "over the next, probably, 10 days" if the US will take military action against Iran. Domestic dealers feared a rise in inflation due to imports of higher-priced crude oil, they said.
Offshore traders paid fixed rates in swaps and traders trimmed bets of further rate cuts in the US in 2026. Systemic liquidity reduced this week with outflows for goods and services tax beginning. Subsequently, overnight borrowing rates are seen higher. Due to geopolitical tensions, the rupee fell against the dollar Friday, leading to the RBI's intervention through dollar sales in the spot market to prevent the rupee from falling to the psychological 91-per-dollar mark. The intervention is likely to drain systemic liquidity further, dealers said.
According to the latest data, the net liquidity absorbed from the banking system by the RBI--a proxy for the liquidity surplus--was INR 2.45 trillion Thursday, down from INR 2.52 trillion Wednesday owing to outflows for GST payments. The systemic liquidity surplus Thursday was the lowest since Feb. 6.
Swaps also rose due to the breaching of technical levels, dealers said. The five-year OIS rose above the key 6.08% level to the day's high of 6.11%. However, near the next technical level of 6.12%, traders received fixed rates, capping a further rise.
"Events offshore have scared onshore (traders) as well, geopolitically US-Iran (tensions) will impact crude (oil)," a dealer at a state-owned bank said. "On the technical front also, we are past that move towards 6.00% (on 5-year OIS) and we're back to rising to 6.15% again."
OUTLOOK
Swaps are not traded Saturdays. On Monday, OIS rates may track the movement of bond yields, which are seen opening higher. Traders may also track the minutes of the RBI's Monetary Policy Committee's February meeting released after market hours Friday. Members of the rate-setting panel said they would continue to remain data-driven.
Traders may also track the movement of US Treasury yields after the release of economic data, including US Personal Income and Outlays for December. Further developments on the US-Iran front will be watched closely. Traders will also assess the US Supreme Court's decision to strike down a vast number of tariffs imposed by President Trump.
Significant movement in the rupee and crude oil prices may also lend cues, dealers said. Traders expect the Overnight Mumbai Interbank Outright Rate to rise in the near term, dealers said. The one-year swap rate is seen at 5.40-5.60% and the five-year at 5.95-6.25%.
At 1700 IST | WEDNESDAY | |
1-year OIS | 5.52% | 5.50% |
2-year OIS | 5.65% | 5.62% |
5-year OIS | 6.10% | 6.04% |
2-year MIFOR | 6.04% | 5.98% |
5-year MIFOR | 6.52% | 6.46% |
End
US$1 = INR 90.9825
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Saji George Titus and Rajeev Pai
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