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Informist, Friday, Mar. 13, 2026

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates were off highs Friday, as traders continued to conduct reverse bond swap trades, as the spread between the 6.01%, 2030 gilt and the five-year OIS rate inverted, dealers said. So far in March, the yield of the 2030 gilt has risen 10 basis points. The five-year OIS rate has risen 40 bps in the same period. Swaps rose as Brent crude for May delivery surged above $100 per barrel earlier in the session, but Brent eased from the day's high nearing the end of Indian market hours, falling below $100 per barrel and swaps followed suit. 

The one-year swap rate ended at 5.84%, against 5.74% Thursday. The five-year OIS rate ended at 6.39%, from 6.34% the previous session. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 618.30 billion, similar to INR 646.60 billion Thursday. Brent crude for May delivery was $99.80 a barrel at 1700 IST, down from $100.86 at 0900 IST and against $97.26 a barrel at the end of Indian market hours on Thursday.

Offshore hedge funds paid fixed rates tracking the rise in Brent crude prices Friday as they exited their received bets, dealers said. However, traders found the spread between gilts and swaps lucrative to receive fixed rates in OIS, they said. Traders sold the 6.01%, 2030 gilt while receiving the five-year OIS as the non-funded instrument offered a higher return, dealers said.

The 5-year OIS rate ended 6 bps higher than the 2030 gilt. The Reserve Bank of India's bond purchases both on-screen and through auction have limited the rise in bond yields amid the West Asia war, dealers said, while offshore traders exit their received bets in swaps tracking the rise in crude, dealers said. Data Friday showed the RBI bought gilts worth INR 572.10 billion on-screen in the week ended Mar. 6, the largest quantum of liquidity it has infused in a week through open market operations outside of auctions, according to RBI data going back to November 2012.

Traders also played on spreads within swap rates, they said. Between the one-year, two-year and five-year swaps, the two-year has risen the most so far this month. Traders also played on spreads between the six-month and one-year swap rate, dealers said. 

"I think I still favour the 5x5 spread (sell the 2030 bond and receive the five-year OIS)," a trader at a primary dealership said. "There are several spread trades possible in OIS right now, people are also expecting a brief (liquidity) deficit later in the month so there's some paying going on in short-tenures. Going into the weekend but, risk appetite will be low so not that aggressive receiving today." 

OUTLOOK

Swaps are not traded Saturdays. Monday, swap rates will track Brent crude oil prices for May delivery and US Treasury yields amid the West Asia war. On the data front, the US Bureau of Economic Analysis Friday revised down US GDP in Oct-Dec to 0.7% from 1.4%.

Depending on the movement of Brent crude prices, the five-year swap could rise to 6.55-6.62% if offshore funds continue to pay fixed rates. However, as Indian government bond yields are seen largely cushioned from the impact of the West Asia conflict due to purchases by the RBI, the spread between gilts and swaps will be lucrative to receive fixed rates, dealers said, capping a rise. This spread is expected to correct in the near term, especially since bond yields are seen rising in the onset of fresh supply in April. 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 the Monetary Policy Committee members on further rate action. 

Some traders also expect the RBI to announce liquidity infusion measures for next week, such as additional OMO auctions, a dollar-rupee buy-sell swap, or a variable-rate repo auction of at least a one-week tenure, dealers said.

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 92.46

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

Edited by Avishek Dutta

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