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Informist, Friday, Mar. 27, 2026

--India's 1-year OIS ends at 6.04%, highest since Mar 28, 2025 

--India's 5-year OIS ends at 6.6350%, highest since Nov 1, 2023 

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates surged Friday as traders increased their bets on the Reserve Bank of India's Monetary Policy Committee raising the repo rate faster than was expected before the US-Israel military attack on Iran began, dealers said. Swaps tracked the movement of Brent crude oil futures and US Treasury yields, they said.

The one-year swap rate ended at 6.04%, the highest in just about a year and up from 5.92% Wednesday. The five-year OIS rate ended at 6.6350%, the highest since Nov. 1, 2023, and up from 6.49% Wednesday. 

Indian financial markets were shut on Thursday for Ram Navami. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 363.50 billion, marginally lower than INR 396.40 billion on Wednesday. Brent crude oil futures for May delivery traded at $110.72 per barrel at the end of OIS market hours Friday, up 13% from $97.98 at 1700 IST Wednesday. The yield on the benchmark 10-year US Treasury note was 4.46% at 1700 IST, up from 4.32% at the same time Wednesday, hovering near its highest since July.

At the upcoming MPC meeting in April, the central bank is seen raising its inflation forecast for 2026-27 (Apr-Mar) by around 50 basis points if the war in West Asia and the consequent disruptions in supply of fuel extend into the new financial year, dealers said. Several traders expect the MPC to begin raising rates in June, and the one-year OIS rate is pricing in around four rate hikes of 25 bps each in the next twelve months.

Both onshore and offshore participants paid fixed rates across the OIS rate curve, dealers said. Some traders hit stop-losses after swaps opened sharply higher from Wednesday. Some dealers who had paid fixed rates earlier in the month booked profits, as the five-year OIS swap rate has jumped 65 bps so far this month. The one-year OIS has risen 56 bps in the same time. Swaps were sporadically off the day's highs tracking the intraday movement of crude prices and US yields, and some traders chose to receive fixed rate bets at levels seen as attractive, since swaps are "overpricing" in rate hikes, they said. According to an Informist Poll, in the worst-case scenario where the military conflict in West Asia drags on for the rest of 2026, economists expect the Monetary Policy Committee to raise the repo rate by up to 50 bps from the current 5.25% in the current calendar year. Several traders hedged their trades in gilts and corporate bonds, dealers said.

"Unless inflation surprises at 8% or higher the RBI is not going to hike rates in April itself, and if this Middle East (West Asia) conflict settles down then the rate hike story will fade," a dealer at a private sector bank said.

Swaps also moved higher as the overnight Mumbai Interbank Outright Rate was set at 5.54% Friday, the highest since Jan. 22. Overnight borrowing rates jumped Friday on funding requirements at the end of the financial year, dealers said. Some traders bet on the MIBOR falling back to the repo rate and lower by the first fortnight in April. Traders also played on spreads between the one-year and two-year swap rates, they said.

"The 1x2 spread is widening, I'd want to receive one-year and pay two-year," a dealer at another private sector bank said. "We've seen a lot of trades going into the two-year OIS."

OUTLOOK

Swaps are not traded Saturdays. On Monday, swaps will track overnight borrowing rates, which are seen above the repo rate on the last trading day of the financial year ending Tuesday. Longer-tenure swaps will also track the movement of the 10-year US Treasury yield and Brent crude oil prices, dealers said. Traders await clarity on negotiations between US and Iran and the possibility of opening the Strait of Hormuz, the vital oil shipping route.

Traders may also track the movement of government bond yields after the Centre post market hours said it will borrow INR 8.20 trillion through gilt issuances in Apr-Sept, of which 25% will be through bonds maturing within 30 to 50 years, lower than market consensus of 30%. Swaps will also be influenced by the rupee's movement, dealers said.

If offshore funds continue paying fixed rates, the five-year OIS rate is on track to hitting 7.00%, dealers said. If crude oil drops to near $80 per barrel, the five-year swap could ease to 6.20% as a fall triggers stop-losses on paid fixed-rate positions. Some traders expect rates to remain above pre-war levels even if oil prices fall, dealers said. The one-year swap rate is seen at 5.90-6.15% and the five-year at 6.40-7.00% on Monday.

End

US$1 = INR 94.81

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

Edited by Ashish Shirke

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