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Informist, Wednesday, Mar. 4, 2026

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended off the day's highs Wednesday, tracking a fall in Brent crude oil futures for delivery in May after The New York Times reported that Iran had indirectly sought to discuss terms to end the conflict with US. Swap rates had risen during the day tracking a surge in crude oil prices and US Treasury yields between Monday and Wednesday due to further escalation in military strikes in West Asia.

The one-year swap rate ended at 5.54%, up from 5.50% Monday. The five-year OIS rate ended at 6.09%, up from 6.03% Monday. Indian financial markets were closed Tuesday on account of Holi. During the day, the one-year swap and five-year swap had risen to the day's highs of 5.56% and 6.13%, respectively. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 685.25 billion, up from INR 568.25 billion Monday.

At 1700 IST, the benchmark 10-year US Treasury yield was 4.08%, up from 3.97% at the same time Monday. Global bond yields rose on fears that inflation would rise due to oil supply disruptions after Iran closed the Strait of Hormuz due to ongoing military strikes in the Gulf region. In joint strikes Saturday, the US and Israel killed Iran's supreme leader in Tehran. Since then, the situation has escalated across the Gulf region, with latest reports indicating that a submarine attack led to the sinking of an Iranian ship off the coast of Sri Lanka in the Indian Ocean.

Even as the US and Israel began their attack on Iran Saturday, the rise in swaps was limited on Monday due to a fall in US yields amid safe-haven demand. However, since then, escalation in the conflict has spooked rates traders on fears of rising inflation. The five-year OIS rate rose to 6.13% Wednesday, above the key technical level of 6.12%. Offshore traders also paid fixed rate contracts, while selling gilts, dealers said.

"Until today (Wednesday) the current view (of offshore traders) was receive (fixed rate contracts) and buy (Indian gilts) bonds," a head of trading at a foreign bank said. "People thought it will just be a one- or two-day skirmish, which is why OIS barely rose two or three bps on Monday, but (over the) past two days, things have gotten quite bad."

However, towards the end of Indian market hours, Brent crude oil for May delivery eased off the day's high. The futures contract fell to $82.27 a barrel at 1700 IST from $84.48 a barrel earlier in the session after The New York Times reported that the Iranian Ministry of Intelligence had Sunday reached out indirectly to the US Central Intelligence Agency, offering to discuss terms for ending the West Asia conflict, citing officials aware of the outreach. Following the report, domestic traders received fixed rate contracts, dealers said.

"RBI is selling dollars so its holding the rupee, and moreover the news that Iran approached US for peace sort of led to the view that okay, maybe this war will end. But officially there's nothing so the geopolitical uncertainty persists," a dealer at a private sector bank said. The rupee hit a record low of 92.3025 per dollar Wednesday amidst the geopolitical turmoil.

OUTLOOK

On Thursday, OIS rates may track the movement of US Treasury yields and crude oil prices amid developments in the West Asia conflict. After hitting 6.13% Wednesday, the five-year swap rate could rise to 6.18% if geopolitical conditions worsen, as Brent crude is likely to remain above $80 per barrel in such a scenario, dealers said. Some speculate Brent crude could hit $90 per barrel or higher. On the downside, the five-year OIS rate could fall to 6.05% if the 10-year US yield falls near 4% or below and a ceasefire or deal between the US and Iran is announced, 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 5.95-6.20%.

End

US$1 = INR 92.15

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

Edited by Ashish Shirke

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