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Informist, Wednesday, Feb. 25, 2026

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates ended little changed Wednesday amid a lack of significant cues on interest rates, dealers said. Trade volumes were concentrated in near-term swap rates, with muted activity in contracts maturing in one year or more.

The one-year swap rate ended at 5.50%, flat against Tuesday's close. The five-year OIS rate ended at 6.05%, slightly up from 6.03% Tuesday. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform surged to INR 576.65 billion from INR 279.45 billion Tuesday.

The one-month swap rate had the highest volume, with most of it from reported trades. The two-month swap traded volume on the CCIL's ASTROID platform was the highest of any tenure. Some dealers said traders were betting on movement in the overnight Mumbai Interbank Outright Rate — the floating leg of the OIS contract – in placing bets on these contracts. The overnight MIBOR rate has been set below the policy repo rate of 5.25% since Feb. 2.

However, the benchmark rate may spike to or near the repo rate in mid-March should advance tax outflows squeeze the banking system liquidity, potentially playing spoilsport for traders receiving near-term swap rates over the past few days, dealers said. Some financial institutions may also be paying fixed rates to hedge their fixed income holdings maturing over the next two months, they said.

"It is very tricky to position in the one- and two-month rates since even a day's spike in MIBOR in March will distort the pricing," a dealer at a primary dealership said. "Plus, there is a lot of hedging interest from asset-liability managers from all institutions, so I think the swaps are fairly priced."

Meanwhile, trading activity was muted across the rest of the OIS curve. US Treasury yields inched higher but had little impact on domestic rates. Traders were largely unwinding received positions because the five-year OIS rate is not expected to sustain below the psychologically crucial 6.00% mark, dealers said. Both domestic and offshore traders kept to the sidelines due to geopolitical uncertainty over tensions between the US and Iran, as well as ahead of India's GDP data, which may provide rate cues, they said.

India's GDP data for Oct-Dec and the second advance estimate for FY26 growth are scheduled for release at 1600 IST Friday. The data will be released under a new series with 2022-23 (Apr-Mar) as the base year. India's GDP growth is likely to have slowed to 7.5% in the December quarter, according to the median of an Informist poll. In Jul-Sept, GDP growth was 8.2% in the old series with the FY12 base year. 

"Most of what is happening is positioning or hedging in the market," a dealer at a private-sector bank said. "Traders don't know what to do with themselves since there is nothing going on with the repo rate. I guess GDP could have an impact, but it feels like people are waiting for it just to adjust their positions rather than take new positions."

OUTLOOK

On Thursday, OIS rates may track US Treasury yields amid a lack of domestic cues. Traders do not expect much volatility in swap rates up to one year, while the five-year OIS rate may not fall below the psychologically crucial 6.00% mark without a firm trigger, dealers said.

Traders are virtually unanimous in expecting a pause in rates in FY27 after members of the rate-setting panel said in the minutes of the February MPC meeting that they would remain data-driven. Further developments on the US-Iran front will be watched closely. Significant movement in the rupee and crude oil prices may also lend cues, dealers said.

Traders expect the overnight MIBOR to remain at or below the repo rate of 5.25% in the near term after RBI Governor Sanjay Malhotra's comments on Monday assuring surplus liquidity, dealers said. The one-year swap rate is seen at 5.40-5.60% and the five-year at 5.95-6.15%.

End

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

Edited by Saji George Titus

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