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Informist, Monday, Mar. 16, 2026

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended off the day's highs Monday as domestic traders received fixed rate contracts on bets of the Reserve Bank of India announcing measures to infuse liquidity this week, dealers said. It was attractive to receive fixed rates near the 6.50% level on the five-year overnight indexed swap rate, they said.

The one-year swap rate ended at 5.84%, the same as Friday but the highest since Apr. 8. The five-year OIS rate ended at 6.43%, its highest since Jul. 3, 2024, and up from 6.39% the previous session. It hit a high of 6.49% intraday. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 428.50 billion, lower than INR 618.30 billion Friday. At the day's high of 5.90%, the one-year OIS was pricing in four rate hikes of 25 basis points each in the next 12 months, dealers said.

Swap rates opened higher as crude oil prices remained elevated. Brent crude oil for May delivery was $103.52 a barrel at 1700 IST, up from $99.80 at the same time Friday, as the West Asia war entered its third week. Offshore players, including hedge funds, continued to pay fixed rate contracts, but a few foreign players were also receiving fixed rate contracts, dealers said.

Several domestic dealers also paid fixed rate contracts in swaps after the RBI did not announce any measures to infuse liquidity post market hours Friday, dealers said. The overnight Mumbai Interbank Outright Rate was set at 5.38% Monday, the highest since Jan. 30, and above the repo rate of 5.25%.

"US yields and crude are not moving much (intraday), it is just domestic (paying) because MIBOR has gone up, stop-losses have been hit, but five-year OIS will have to close above 6.50% to cement an uptrend," a dealer at a private sector bank said.

Some traders hit stop-losses as the five-year OIS traded above the key 6.40-6.42% levels, they said. Last week, domestic traders were receiving fixed rates in swaps, while selling gilts, especially receiving the five-year OIS while selling the 6.01%, 2030 gilt. Some traders unwound those trades Monday after hitting stop-losses in swap rates, dealers said.  

"We've heard offshore is paying today (Monday), but we don't have last week's private (sector banks) ALM (asset and liability management) receiving to offset that, but even then this week RBI will definitely have to announce something (liquidity infusion) so it's a good level to receive," a market participant said.

However, rates were attractive to receive on bets of liquidity infusions by the RBI, dealers said. After payments of around INR 1.5 trillion for advance tax on income tax and corporation tax, payments for goods and services tax amounting to around INR 1.8 trillion will drain systemic liquidity by end of this week, dealers said. Dealers in the foreign exchange market were expecting the announcement of a dollar-rupee buy-sell swap auction of up to $10 billion for three years Friday, as the central bank's dollar sales in the spot market drain rupee liquidity. Traders still hold such expectations. Gilt market dealers expect more open market operations auctions, after INR 1.00 trillion of OMO auctions conducted last week. Some also expect a variable rate repo auction of at least a one-week tenure.

OUTLOOK

Tuesday, swap rates will track overnight borrowing rates and any announcement of measures to infuse liquidity in the banking system by the RBI, dealers said. As seen so far this month, swaps will also track Brent crude oil prices for May delivery amid the West Asia war. Traders will also track US Treasury yields, as the US Federal Open Market Committee's two-day meeting kicks off Tuesday, wherein traders expect a status quo on rates.

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, dealers said. While the spread between gilts and swaps is lucrative to receive fixed rates, any stop-losses hit may lead to unwinding of these spread trades, dealers said. In the longer run, the inverted spread is expected to correct, especially since bond yields are seen rising due to 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. Moreover, short-term swap rates will track the movement of overnight borrowing rates amid heavy outflows, dealers said. The RBI is seen providing ample liquidity to the banking system for transmission of 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 5.62-6.00% and the five-year at 6.15-6.62%.

End

US$1 = INR 92.42

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

With inputs from Janwee Prajapati

Edited by Ashish Shirke

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