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Informist, Thursday, Mar. 12, 2026

By Cassandra Carvalho

MUMBAI – Most overnight indexed swap rates ended steady Thursday, wiping out a sharp gain seen earlier in the day, as several traders said swap rates were overpricing rate hikes, and current levels were lucrative to receive, dealers said. Tracking a surge in Brent crude oil futures for May delivery to $100 per barrel, swap rates had jumped earlier in the session. 

The one-year swap rate ended at 5.74%, the same as Wednesday. The five-year OIS rate ended at 6.34%, from 6.35% the previous session. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 646.60 billion, lower than INR 714.10 billion Wednesday. The yield on the benchmark 10-year US Treasury note was 4.24% at 1700 IST Thursday, up from 4.16% at the same time Wednesday.

Offshore traders paid fixed rate contracts, tracking a surge in crude oil prices in early trade Thursday to exit their received bets, dealers said. However, crude oil prices were off highs later in the session, and both domestic and offshore traders took the opportunity to receive fixed-rate contracts while selling gilts, dealers said. The spread between Indian government bonds and OIS rates was too narrow and was bound to rise again, dealers said, making it lucrative to receive fixed rates in the non-funded instrument.

The spread of the on-the-run five-year 6.36%, 2031 bond over the five-year OIS rate was 2 basis points Thursday. Most traders preferred to short-sell short-term gilts and receive swap rates since the RBI was speculated to be purchasing the longer-term 10-year benchmark 6.48%, 2035 and 15-year benchmark 6.68%, 2040 gilts on-screen, they said. The central bank's likely on-screen gilt purchases deterred traders from aggressively short-selling gilts even as they preferred to receive fixed-rate contracts in swaps at levels seen to be lucrative and exit postions in gilts, dealers said.

"The OIS-bond spread has collapsed. So in this, banks would want to receive OIS and short-sell G-sec as this spread can't be so low," the head of trading at a foreign bank said. "Offshore has been paying, today maybe later in the day they received some (fixed rates) as oil came off from $100 (per barrel)."

Swap rates were overpricing in a rate hike cycle in India, dealers said. The one-year swap rate is pricing in around two rate hikes at its current level, dealers said, which seemed realistically unlikely, as several traders do not expect the West Asia conflict to extend into the new financial year starting April, they said.  

"We've been doing a 10x2 (sell 10-year bond, receive two-year OIS) as no one is actually seeing a rate hike immediately," a dealer at a private sector bank said. "RBI will keep pumping in liquidity, so your MIBOR (overnight Mumbai Interbank Outright Rate) is still around 5.15%, that's around a 120-130 bps spread between the five-year OIS." The overnight MIBOR was set at 5.12% Thursday.

OUTLOOK

Swap rates are seen opening higher Friday after Brent crude oil prices for May delivery rose back to $100 per barrel post market hours after Iran's newly chosen supreme leader Mojtaba Khamenei said that the Strait of Hormuz would continue to be closed and that all US bases should be immediately closed in the Gulf region or be attacked. Traders will also track US Treasury yields. Jobless claims for the week ended Saturday in the US fell by 1,000 to 213,000 against a Wall Street Journal poll of 215,000. 

The five-year swap could rise to 6.55-6.62% if Brent crude oil once again rises to $120 per barrel and upwards. If crude oil futures fall back to around $80 a barrel, the five-year swap could ease to as low as 6.15% as stop-losses will be triggered on paid fixed-rate bets, dealers said. Swap rates maturing in up to one year may also be volatile as traders bet on whether higher inflation or lower growth will tip the votes of MPC members on further rate action. 

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. Traders will track the result of the INR-500-billion open market operations auction Friday. The RBI is seen providing ample liquidity to the banking system for transmission of easy monetary policy after the 125 bps of rate cuts in 2025. Significant movement in the rupee may also lend direction, dealers said. The one-year swap rate is seen at 5.62-5.90% and the five-year at 6.15-6.55%.

End

US$1 = INR 92.19

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

Edited by Deepshikha Bhardwaj

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