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Informist, Tuesday, Mar. 24, 2026

By Janwee Prajapati

MUMBAI – Most overnight indexed swap rates ended lower Tuesday as crude oil prices eased and there were signs of de-escalation in the West Asia war. However, both the one- and five-year OIS contracts ended off lows as traders hedged their bond holdings and avoided adding to their portfolio risk overnight due to the prevailing uncertainty about the conflict, dealers said.

The one-year swap rate ended at 5.95%, slightly down from 5.97% on Monday. The contract traded in a 5.89-6.03% band during the day, showing significant volatility. The five-year OIS rate ended at 6.50%, down from 6.52% Monday. The benchmark rate was also volatile, trading in a band of 6.45-6.57%. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 766.85 billion, up from INR 546.35 billion Monday.

Brent crude oil for May delivery remained above $100 a barrel during Indian market hours Tuesday, though it was off the peak of $114 a barrel Monday. US President Donald Trump Monday repeatedly said negotiations with Iran were ongoing, with a potential agreement this week, and announced a five-day halt on strikes on Iran's energy infrastructure. Iranian media and officials denied any intention of a ceasefire with the US.

The one-year OIS rate rose to 6.03% in thin trade early in the day but failed to stay above the psychologically crucial level of 6.00% as some mutual funds unwound their fixed rate bets taken over the last two trading sessions, dealers said. At that level, the swap rate was pricing in four repo rate hikes of 25 basis points each, which were seen as unlikely unless the war in West Asia continued for several months.

While most traders expect only one or two rate hikes in India in 2026-27 (Apr-Mar), the Reserve Bank of India's Monetary Policy Committee may raise policy rates as early as June due to an expected rise in inflation caused by surging oil prices, dealers said. The uncertainty around the war had led to continued paying interest from domestic investors looking to hedge the interest-rate risk on their bond holdings by paying fixed rates.

"While this might look like a good opportunity to receive, the risk is just too high," a dealer at a private-sector bank said. "Domestic players can easily receive (fixed rates), if I can see the opportunity others can also see it, but there is way too much volatility in market."

Swap rates fell to the day's low following a report from Saudi Arabian news agency Al-Arabiya that Iran's new supreme leader, Mojtaba Khamenei, has agreed to negotiate with the US to reach an agreement on the West Asia conflict that began with the US and Israel bombing Tehran and killing his father, former supreme leader Ali Khameini, on Feb. 28. Following the report, the yield on the 10-year benchmark 6.48%, 2035 bond fell to 6.81% from the day's high of 6.87%, and the rupee also gained, pulling down swap rates, dealers said. However, some traders are awaiting official confirmation before taking aggressive positions, limiting the fall, dealers said.

"The news was not very authentic. Half on the market reacted but it suddenly realised there was nothing concrete," a dealer at a primary dealership said. "Even in SDL (state government bond auction) cut-off were at tail (higher yields) which led to rise in bond yields and OIS tracked bond yields."

The one- and two-month swap rates were largely flat as they had already factored in the risk of rate hikes by June. Most traders do not expect the Monetary Policy Committee to hike rates at the upcoming policy in April, though comments from RBI Governor Sanjay Malhotra may suggest more caution on the external front and a reduced comfort with easy monetary policy, dealers said.

OUTLOOK

Swap rates are likely to open steady on Wednesday if there's no escalation in West Asia tensions and macroeconomic conditions remain unchanged, dealers said. However, some traders expect swap rates to open lower if there are further reports on negotiations between the US and Iran to end the war in West Asia. The market will be influenced by Brent crude oil prices, US Treasury yields, and rupee movement along with developments on West Asia conflict, dealers said.

If offshore funds keep paying fixed rates, the rate might hit 6.55-6.62%, dealers said. If crude oil drops to near $80 per barrel, the five-year swap could ease to 6.20% due to stop-loss triggers. Some traders think rates will not revert to pre-war levels even if oil prices fall, dealers said.

The one-year swap rate is seen at 5.70-6.10% and the five-year at 6.40-6.65% on Wednesday.

End

US$1 = INR 93.87

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

Edited by Ashish Shirke

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