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Informist, Monday, Mar. 2, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended higher Monday as traders paid fixed-rate contracts, tracking the surge in crude oil prices amid supply disruptions stemming from the attack on Iran by the US and Israel and Tehran's retaliation. However, a fall in US Treasury yields limited the rise in swaps and they ended off the day's high, dealers said. Several dealers expected a sharper rise in swaps Monday due to the geopolitical conflict. 

 

The one-year swap rate ended at 5.50%, up from 5.48% Friday but the same as Thursday's close. The five-year OIS rate ended at 6.03%, up from 5.99% Friday, after hitting a high of 6.06% during the day. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 568.25 billion, similar to INR 551.40 billion Friday. At 1700 IST, the benchmark 10-year US Treasury yield was 3.97%, down from 3.99% at the same time Friday. US yields fell on safe-haven demand amid risk-off sentiment driven by the West Asia conflict, concerns about the credit markets, and disruptions in traditional business due to artificial intelligence.

 

Swap rates rose across the curve as traders feared a rise in inflation due to the surge in crude oil prices amid the West Asia conflict. Brent crude for May delivery rose to $78.20 a barrel at 1700 IST from $72.15 a barrel at the end of Indian market hours on Friday. It had hit a high of $82.37 Monday, as Iran warned ships not to use the Strait of Hormuz, through which about 20% of the world's oil and gas passes. Joint strikes by the US and Israel on Saturday killed Iran's Supreme Leader Ayatollah Ali Hosseini Khamenei, after which Iran retaliated by striking several US bases and oil refineries in the Gulf region. US President Donald Trump had said the operation may last four weeks. Strikes are ongoing and Israel has begun strikes on targets in Lebanon.

 

"When crude prices fell, the government did not lower oil and gas prices, so now we don't expect them to hike it either," a dealer at a private sector bank said. "And in such a situation (geopolitically), some fears of recession also come to mind, in which instance the rate curve will flatten."

 

Brent crude is expected to rise above $80 per barrel again, since the conflict is not seen ending soon, dealers said. Several traders had expected the five-year OIS rate to hit 6.10% Monday. However, on the technical front, after the five-year OIS ended below the key 6.00% level Friday, some traders see a downward move in swaps and said current levels were good to receive fixed rates, dealers said. Some offshore traders paid fixed-rate contracts, but flows were in low volume, dealers said. Moreover, the fall in US Treasury yields limited the rise in swaps, and crude oil prices were also off the day's high, dealers said.    

 

"OIS was comparatively not as volatile during the day as we were expecting it," a dealer at a state-owned bank said. "While the chances of a rate hike in OIS go up, OIS was also tracking US yields. US yields have been coming down."

 

OUTLOOK

The swaps market is shut Tuesday for Holi. On Wednesday, OIS rates may track movement in US Treasury yields and crude oil prices and developments in the West Asia conflict. The five-year swap rate is expected to rise to 6.10% this week, as Brent crude is likely to remain above $80 per barrel, dealers said. If offshore traders, who had largely received fixed rates last month, aggressively pay fixed rates and if the 10-year US yield rises, then the five-year OIS rate could rise further, dealers said. On the downside, the five-year OIS rate could fall below 6.00% again if the 10-year US yield sustains a fall below 4% and falls to 3.80%, in which case the five-year OIS rate could fall to 5.85-5.90%, dealers said. 

 

Swap rates maturing in up to one year may also rise in the near term as money market rates are expected to rise amid seasonally high demand for funds and credit growth nearing the end of the March quarter, dealers said. Significant movement in the rupee and Indian government bond yields may also lend cues, dealers said. The one-year swap rate is seen at 5.40-5.60% and the five-year at 5.95-6.15%.

 

	At 1700 IST	FRIDAY
1-year OIS	5.50%	5.48%
2-year OIS	5.63%	5.59%
5-year OIS	6.03%	5.99%
2-year MIFOR	6.15%	6.09%
5-year MIFOR	6.53%	6.52%

 

End

 

US$1 = INR 91.47

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

 

Edited by Saji George Titus

 

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