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Informist, Monday, Mar. 9, 2026

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates surged Monday after Brent crude for May delivery unexpectedly cruised past $100 a barrel to over a three-year high of $119.50. The one-year OIS rate is now pricing in more than two rate hikes on fears of inflation rising, dealers said. The swap was up 23 basis points Monday, the biggest jump since May 5, 2022. The spread between the 10-year benchmark bond yield and the five-year swap rate narrowed to 34 bps Monday, the lowest since early Oct. 2022, making the latter lucrative to receive.

The one-year swap rate ended at 5.84%, the highest since Apr. 8, 2025 and up from 5.61% Friday. The five-year OIS rate ended at 6.38%, the highest since Jul. 8, 2024, and up from 6.22% the previous session. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 560.60 billion, down from INR 629.45 billion Friday.

Both the one-year and the five-year swap rates hit multi-year highs Monday. At the day's high of 5.87%, the one-year OIS rate was at its highest since Apr. 9, 2025. The five-year OIS hit 6.44%, the highest since Jul. 3, 2024. This is after Brent crude oil futures jumped 36% from 1700 IST Friday as major oil producers such as Saudi Aramco have begun cutting output amid logistical disruptions in the movement of oil due to the Israeli-American war against Iran. After joint strikes by the US and Israel killed Iran's supreme leader Ayatollah Ali Khamenei in Tehran over a week ago, Iran announced his son Mojtaba Khamenei as his successor, indicating that Iran's retaliation and anti-US sentiment would continue.

Some dealers said that swap rates were overpaid, since realistically, dealers do not expect two rate hikes within the next 12 months. However, dealers expect the timeline of a rate hike cycle in India to now be earlier than initially expected. Any hopes of further rate cuts by the Reserve Bank of India's Monetary Policy Committee this calendar year were dashed after the strikes on Tehran, dealers said. Globally, too, a rise in bond yields has indicated that due to fears of inflation rising, the probability of further rate cuts has decreased. The yield on the benchmark 10-year US Treasury yield was 4.18% at 1700 IST Monday, up from 4.15% at the same time Friday. 

"In such a case (with crude oil futures rising), then his (RBI Governor Sanjay Malhotra's) comment 'low (rates) for long' won't be valid anymore," a dealer at a private sector bank said. "Now there will be a bear-flattening, short-term will get hit (rise). Already you see today (Monday) two-year OIS has been hit the most." The two-year OIS rate rose 25 bps to 6.02% Monday. 

"We expect the policy (repo) rate to be around this level (5.25%) or lower for a long time, barring any shocks," Malhotra had told financial newspaper The Economic Times before the West Asia conflict began. 

Some dealers hit stop-losses at the 6.35% level on the five-year swap. Due to technical levels, and after crude oil futures eased off the day's high to $105.05 a barrel at 1700 IST Monday, most dealers found current swap rates lucrative to receive fixed rates. Moreover, dealers felt they had more scope to trade in swaps than in government bonds, since the RBI's gilt purchases both through auction and on-screen have capped a rise in bond yields so far this month and, hence, gilt yields do not reflect the change in India's macroeconomic fundamentals, dealers said. A large financial institution likely received swap rates to hedge its bond trades Monday, dealers said. A few dealers still preferred to pay fixed rates contracts in swaps, with expectations that Brent crude futures could rise further.    

"OIS has fairly priced the rise in crude oil, while G-sec has not, so the spread is historically narrowed and it's good to play on a bond swap in reverse, receive the five-year OIS, and sell either the five-year, 10-year or 15-year G-sec," a trader at a primary dealership said. 

OUTLOOK

Tuesday, OIS rates will track the movement of crude oil prices and geopolitical developments. Traders will track the outcome of the Group of Seven nations' emergency meeting on surging oil prices. The Financial Times reported that the nations will discuss a joint release of petroleum from reserves, co-ordinated by the International Energy Agency. US Senate Minority Leader Chuck Schumer has pushed for US President Donald Trump to sell oil from the Strategic Petroleum Reserve.

The five-year swap could rise to 6.55-6.62% if Brent crude oil sustains a rise above $100 per barrel and surges further past the technical level of $120 per barrel. If crude oil futures fall back to around $80 a barrel then the five-year swap could fall to 6.15%, dealers said. However, several traders do not expect swaps to rise much further, due to receiving at current levels. Any rise in swap rates may be partially offset as traders hedge their bond trades and OIS levels become lucrative to receive. Indian government bond yields are seen largely cushioned from the impact of the West Asia conflict due to purchases by the RBI, both on-screen and via auction, dealers said. Swap rates maturing in up to one year may also rise in the near term as money market rates inch higher this month amid seasonally high demand and traders begin to advance their rate hike bets on fears of inflation rising. On the domestic front, the RBI is seen providing ample liquidity to the banking system for transmission of its monetary policy. Significant movement in the rupee may also lend direction, dealers said. The one-year swap rate is seen at 5.70-5.90% and the five-year at 6.15-6.55%.

End

US$1 = INR 92.3275

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

Edited by Deepshikha Bhardwaj

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