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Informist, Wednesday, Mar. 18, 2026

By Janwee Prajapati

MUMBAI – Overnight indexed swap rates ended at the day's high Wednesday, tracking a fall of the rupee to a record low and an intraday rise in crude oil prices, dealers said. The rise in OIS rates was limited due to the fall in US Treasury yields overnight, which had initially pushed down swap rates. Traders avoided building aggressive positions ahead of the US Federal Open Market Committee rate decision scheduled at 2330 IST, they said. 

The one-year swap rate ended at 5.82% after falling to 5.76% intraday and up from 5.80% Tuesday. The five-year OIS rate ended at 6.42%, up from 6.38% the previous session and a low of 6.34% Wednesday. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 497.35 billion, against INR 332.05 billion Tuesday.

The rupee fell to a record low of 92.6450 a dollar before settling at 92.6300, declining 0.3% from its previous close of 92.3700. At 1700 IST, Brent crude for May delivery inched higher to over $105 per barrel, up from $101.95 per barrel at 0900 IST and from around $103 per barrel at 1700 IST Tuesday, the close of Indian market hours.

The movement of both instruments increased concerns on domestic inflation, and the one-year swap rate was the most traded contract Wednesday. The near-term bellwether of interest rates was pricing in over 50 basis points of rate hikes over the next 12 months, with conviction likely to increase if the war in West Asia goes on, dealers said. 

"OIS reacted to (rise in) oil and rupee," a dealer at a private-sector bank said. "There was receiving (receiving fixed rate contracts) early in the morning due to fall in US yields."

At 0900 IST, the benchmark 10-year US Treasury yield was 4.19%, down from 4.22% at 1700 IST Tuesday, easing to 4.18% by the end of Indian market hours Wednesday. Traders will track comments from US Federal Reserve Chair Jerome Powell on the ongoing military conflict in West Asia and the rising crude oil prices, dealers said. The outlook on US growth and inflation will also be in focus, dealers said. However, traders do not expect any significant impact of FOMC meeting as they largely expect the rate-setting panel to leave the policy rates unchanged, dealers said.

Domestic entities received fixed rates for the second straight day on the view that the RBI's Monetary Policy Committee is unlikely to raise the policy repo rate in 2026-27 (Apr-Mar). Those views may change in crude oil prices remained high, but traders were betting on the intensity of the conflict to die down and a resumption of flows through the Strait of Hormuz within a few months, at most, dealers said. The activity picked up as the five-year OIS rate rose to 6.43%, with traders booking profits on their received fixed rate bets when the OIS contract had fallen to the day's low of 6.34% earlier. The 6.33% rate on the five-year swap rate is psychologically crucial and may trigger stop-losses if it breaks.      

"There is some domestic receiving in five-year OIS likely from private banks and PDs (primary dealerships)," a dealer at a primary dealership said.   

Trade volume in one-year OIS was more than the five-year OIS as banks and corporates hedged their fixed income exposure, dealers said. Some traders also preferred receiving the one-year OIS due to its attractive spread over the overnight Mumbai Interbank Outright Rate – the floating leg of the OIS contract. The overnight MIBOR was set at 5.34% Wednesday, above the policy repo rate of 5.25%. Traders do not expect the overnight MIBOR to fall below the repo rate until the end of March, dealers said.

OUTLOOK

Money markets will remain shut Thursday on account of Gudi Padwa. Friday, swap rates will track Brent crude oil prices for May delivery as the conflict in West Asia continues. Traders will also track US Treasury yields after the US Federal Open Market Committee decision later in the day. Significant movement in the rupee may also lend direction, dealers said.

Even after the RBI conducted an INR-1.50-trillion variable rate repo auction Tuesday, the overnight MIBOR was set above the repo rate at 5.32%. Traders do not expect MIBOR rate to ease below the repo rate in the current financial year ending Mar. 31, dealers said. Some traders also expect the RBI to announce liquidity infusion measures in the form of more variable rate repo auctions, dealers said.

Depending on the movement of Brent crude oil prices, the five-year swap rate could rise to 6.55-6.62% if offshore funds continue to pay fixed rates, dealers said. In the longer run, the inverted spread is expected to correct, especially as bond yields are seen rising with fresh supply coming in April. If crude oil futures fall back to around $80 a barrel, the five-year swap could ease to as low as 6.20% as stop-losses will be triggered on paid fixed-rate bets, 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 92.63

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

Edited by Deepshikha Bhardwaj

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