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Informist, Monday, Mar. 30, 2026

--India's 1-year OIS ends at 6.24%, highest closing level since Mar 4, 2025 

--India's 5-year OIS ends at 6.80%, highest closing level since Oct 23, 2023 

--India's 1-year OIS ends at 6.24% Mon, rises 20 bps in FY26

--India's 5-year OIS ends at 6.80% Mon, rises 89 bps in FY26
 

By Aaryan Khanna

NEW DELHI – Overnight indexed swap rates surged Monday as traders redoubled their bets on a rate hike in India with the West Asia war continuing unabated over the weekend and crude oil prices rising, dealers said. Both benchmark rates rose sharply in financial year 2025-26 (Apr-Mar) despite the Reserve Bank of India's Monetary Policy Committee cutting the policy repo rate by 100 basis points during the year.

The one-year swap rate ended at 6.24%, the highest since Mar. 4, 2025, and up from 6.04% Friday. The five-year OIS rate ended at 6.80%, up from 6.64% Friday and the highest closing level since Oct. 23, 2023. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 349.20 billion, similar to INR 363.50 billion on Friday. 

The one-year swap rate rose 20 bps in FY26, all made up on the last day of trade Monday as Friday's close was the same as on Mar. 28, 2025, the last trading day of the previous financial year. The one-year swap rate is pricing in more than four 25-bps rate hikes rate in the next 12 months, starting as soon as April, dealers said. Due to thin liquidity in the government bond market, most traders were looking to hedge risk on their gilts and state government securities maturing in under two years, which are seen as the most sensitive to interest rate rises. The five-year swap rate was 89 bps higher in FY26, the majority of it in the last month after the outbreak of war in West Asia.

"You say its due to hedging, until you finally realise you are fully hedged and still want to pay in case rates actually go up," the fixed income head of a mutual fund said. "Although fresh flows are limited, every bout of paying is leading to stop-losses and there are no counterparties willing to receive, which is a big surprise at current levels."

OIS rate maturing up to two months had fallen initially as the contracts no longer counted the fixing on Monday as part of the pricing, which was expected to shoot up at the quarter-end and financial year-end due to banks' demand for funds for credit disbursals, dealers said. The Overnight Mumbai Interbank Outright Rate – the floating leg of the OIS contract – was set at 6.98% Monday, the highest since the last trading day of FY25. The central bank's move to curb speculative positions in the domestic currency were also expected to lead to traders initiating dollar-rupee buy-sell swaps that would bring down both foreign exchange forward premia and OIS rates.

However, some traders expect money market rates to remain sticky in the next two trading sessions until Apr. 6 due to a lack of significant inflows into banking system liquidity, especially with the holiday-shortened week. Money markets are shut on Tuesday, Wednesday and Friday. These swap rates are already pricing in nearly a 100% chance of a repo rate hike to 5.50% next week, though the pricing is distorted by the high overnight MIBOR fixing, dealers said. The swap rates are likely to fall by next week in the run-up to the policy. Moreover, several banks did not unwind their onshore-offshore foreign exchange arbitrage trades as expected on Monday, which kept dollar-rupee forwards elevated onshore and did not lead to traders receiving the one-year OIS rate, dealers said. 

"There has been relatively less knock on impact of the RBI's norm on NOP (net open positions)," a dealer at a primary dealership said. "As of now, since the rupee is under pressure and the war is going haywire, people are just in a hurry to get out." After gaining as much as 122 paise against the dollar Monday, the rupee ended at a record closing low of 94.8300 a dollar.

Brent crude futures for May delivery hovered near $115 a barrel during Indian market hours Monday, up from $110.01 a barrel at the end of Indian market hours Friday. The 10-year US Treasury yield also remained around 4.40%, at the top end of its trading range in the last eight months as traders feared the US Federal Open Market Committee would hike rates in 2026 in response to inflationary pressures from the blocking of the Strait of Hormuz. The global cues prompted offshore traders to pay fixed rates and pushed up swap rates to multi-month highs by the close of trade, dealers said.

OUTLOOK

Money markets are shut Tuesday for Mahavir Jayanti and on Wednesday for banks' closing of accounts for FY26. On Thursday, swaps will track overnight borrowing rates, which are seen near the repo rate amid liquidity tightness and demand from banks due to the holiday-shortened week, dealers said.

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, even as the war in West Asia remains intense. The movement in government bond yields may also lend direction after the 10-year benchmark gilt yield ended at a near-22-month high of 7.03% Monday. 

If offshore funds continue paying fixed rates, the five-year OIS rate is on track to test 7.00%, its highest level since October 2022, dealers said. If crude oil drops to near $80 per barrel, the five-year swap could ease to as low as 6.25% 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 5.90-6.35% and the five-year at 6.40-7.00% Thursday.

End

US$1 = INR 94.83

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

Edited by Deepshikha Bhardwaj

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