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Informist, Thursday, Mar. 5, 2026

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended steady Thursday, giving up early gains tracking a fall in Indian government bond yields, dealers said. Swaps rates have ended off the day's highs on all sessions this week, tracking easing of gilt yields on speculated on-screen gilt buys by the Reserve Bank of India, dealers said. 

The one-year swap rate ended at 5.55%, against 5.54% Wednesday. The five-year OIS rate ended at 6.10%, against 6.09% the previous session. The five-year swap had risen past the technical level of 6.12% to 6.14% Thursday, tracking a rise in US Treasury yields. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 626.10 billion, similar to INR 685.25 billion Wednesday. The yield on the benchmark 10-year US Treasury yield was 4.12% at 1700 IST Thursday, up from 4.08% at the same time Wednesday, on fears of inflation rising due to a surge in crude oil prices, and after jobs data was stronger than expected. Jobs in the private sector in the US rose by 63,000 in February, against consensus estimates of 48,000, according to ADP's National Employment report released Wednesday. Brent crude oil futures for delivery in May have surged over 17% due to the widening military conflict between Iran and the US and Israel. 

Focus was largely on the geopolitical conflict in the Gulf region and its impact on inflation, though most traders see the strikes as short-lived. Some traders also paid fixed rate contracts to hedge purchases in bonds and underwriting of bond forward rate agreements, dealers said. The government will sell two gilts Friday, of which one is the 6.90%, 2065 bond which insurance companies are likely to purchase for bond forward rate agreements, dealers said. 

"A lot of the mutual fund paying (in OIS) is because cash market rates are up. If I like a two-year (corporate) bond, it's giving me a 7.15% yield then I do a reverse trade (pay) at 5.70% (on the two-year swap rate) so I'm pocketing a big spread there."

However, later in the day, the 10-year benchmark bond yield fell below the psychologically crucial 6.65% level, below the level when the US-Israel joint strikes began, likely due to hefty purchases by the Reserve Bank of India, dealers said. The 'Others' segment of gilt market participants, which comprises the RBI, insurance companies, and provident funds, have net bought gilts worth INR 473.45 billion so far this week, most of which is speculated to be by the RBI, dealers said. Swaps tracked the fall, easing off the day's high.

"The RBI has conducted so much of OMOs (open market operations auctions) and it is buying on-screen also, so there are not many sellers left in the market," a dealer at a private sector bank said. 

OUTLOOK

On Friday, OIS rates may track the movement of Indian government bond yields after 'Others' were the only net buyers of gilts Thursday, according to data from the NSE Cogencis WorkStation. Swaps may also track US Treasury yields and crude oil prices amid developments in the West Asia conflict. The five-year swap rate could rise to 6.18% in the near term if crude oil prices sustain a rise above $85 per barrel. 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 a ceasefire or deal between the US and Iran is announced, dealers said. 

The 10-year US Treasury yield rose past the key technical level of 4.13% to a high of 4.15% after Indian market hours. Weekly jobless claims for the week ended Saturday were unchanged at 213,000, against a Wall Street Journal poll estimate of 215,000.  

Swap rates maturing in up to one year may also rise in the near term as money market rates are expected to rise by the end of this week amid seasonally high demand for funds due to large outflows for tax payments alongside credit growth nearing the end of the March quarter, dealers said. Significant movement in the rupee may also lend direction, dealers said. The one-year swap rate is seen at 5.43-5.62% and the five-year at 5.95-6.20%.

End

US$1 = INR 91.60

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

Edited by Avishek Dutta

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